Watch the webinar
Today's webinar involved the CBI’s own Chief Economist, Rain Newton-Smith, and the Research Director of the Resolution Foundation, Laura Gardiner. The Resolution Foundation and Laura have done a lot of work on intergenerational fairness – and the word “intergenerational” certainly came up a number of times in our discussion. How are younger people faring through the current crisis? What will their prospects look like once the economy restarts? These were the questions we focussed on, although we also touched on some other subjects.
Here are the key takeaways:
- Easier loans for smaller businesses
- The macroeconomic outlook
- The new intergenerational crisis
- What should the policy response be?
- The importance of skills.
Easier loans for smaller businesses
From the Job Retention Scheme (JRS) portal to the introduction of the Coronavirus Large Business Interruption Loan Scheme (CLBILS), the past couple of weeks have been ones of great progress by the government. Money is finally getting to the businesses that need it.
Yesterday, there was another encouraging development. The Treasury announced its new Bounce Back Loan Scheme – which, as Rain explained, “will be up and running by Monday next week”. This scheme offers a quick route to loans of between £2,000 and £50,000 for small businesses, backed by a 100% government guarantee. The forms are straightforward. There will be no fees, interest or repayments in the first year. And the money should reach businesses’ bank accounts within 24 hours of application.
This corrects one of the major problems with the government’s main Coronavirus Business Interruption Loan Scheme (CBILS) which the CBI has been highlighting for weeks: that it is too slow and onerous for small businesses. In fact, as Rain said, the new scheme “has the main components of what we wanted” – indeed, we formally proposed something very similar last week.
This does not mean that there’s no longer room for improvement in the government’s economic rescue package. The CBI is still calling for more to be done around Business Rates and grants, as well as for the JRS to be made more flexible as businesses start to reopen.
But, as Rain said, “The truth is that there are fewer and fewer businesses who are not covered by one of the schemes out there.”
The macroeconomic outlook
Rain also highlighted some of the findings from the CBI’s latest Industrial Trends Survey, which reported last week:
- “Business confidence has fallen to its lowest level since [the] survey began in 1958.”
- “Volumes and orders have fallen back to the levels we saw during the global financial crisis.”
- “Over a quarter of manufacturers have had to shut down their production completely.”
- “Over half of those businesses have had to have at least some form of partial shutdown of their operations.”
The problem is double-edged, explained Rain: both demand and supply are down. However, there are some signs that the second of those – supply – is starting to improve. “We are starting to see some opening up across Asia, and more of that production coming back on schedule.”
The new intergenerational crisis
Rain concluded her summary of the macroeconomic picture by observing that “some of the issues we were grappling with before the crisis haven’t gone away” – and that includes the issue of intergenerational fairness.
At which point, Laura described the Resolution Foundation’s existing working this area. From average earnings to housing affordability, “you do see a challenging situation for younger generations, who are doing no better – and, in some cases, doing worse – than older generations, and bearing more risk.”
Will the coronavirus crisis accelerate these trends? “I think it’s right to think about trends being accelerated,” said Laura. “But it’s important to point out what’s different.”
Laura drew a comparison with the financial crisis of 2008. Back then, particularly in the “early stages”, the effects were mostly felt by those in the financial sector. The longer-term, “scarring” effect was reduced pay for young people, who were often “stuck for longer in lower-paid jobs”.
It’s different this time around. The early risks of the pandemic will be most seriously felt by “low earners”, Laura explained. “Health risk if you’re a key worker; economic risk if you work in a shutdown sector. And 16-to-24-year-olds are twice as likely as average to work in a shutdown sector.”
For these young people, the shock is likely to be to employment itself, rather than reduced pay: the jobs that are being “cancelled” are the sorts of jobs that many young people may already be in, or may have hoped to enter after completing education. “We could be returning to an 80s- or 90s-style unemployment scarring.”
The JRS is, Laura said, a “good thing” – but it’s not designed to deal with this sort of scarring. “By protecting the prior earnings of existing workers, we are doing much less for young people who either haven’t entered the labour market yet… or who have just started work and would have otherwise expected steep earnings progression.”
What should the policy response be?
If the JRS isn’t the right policy for helping today’s stranded young people, what is? Laura had a number of suggestions, including: more funding for apprenticeships; more funding for further education; and more flexibility around further and higher education courses, so that young people can complete the learning that they may have missed out on during the lockdown.
She also highlighted the old Future Jobs Fund, by which the government subsidised wages for long-term young unemployed people, as the sort of mechanism that could work now.
However, Laura was less keen on the idea of fiddling with student loan repayments, as the existing system is already “well calibrated” for the current situation: “The [existing] income-contingent repayment system is exactly the right thing. Those who earn less won’t pay as much. The lowest earners have their debts covered by the government. Anything else you change will just benefit better-off graduates.”
Laura also raised the general balance of tax and spending after the crisis – through which the government will have to pay down the growing deficit. “What is the fairest way to raise money?” Perhaps, she suggested, there could be a “one-off tax surcharge on high earners”.
The importance of skills
Laura and Rain also emphasised the importance of skills. “How can businesses help with training needs?” asked Rain. “That will really be repaid over the long run.”
This is true for both young people and older people. In fact, said Rain, “younger people are more knowledgeable about working from home and are flexible…. [Spreading] that learning between generations can be really powerful…. How do we make it easier for the older generation to return to work as we open up?”
Happily, the government has today launched a new online platform which offers a range of free training courses. This Skills Toolkit can be found here.
Key questions we answered:
- To Rain, last week, you gave us an economic update on the impact of the crisis so far. Is there any more detail you can give us on that?
- Government support measures are critical not just to keep businesses going right now, but also to give them space and scope to plan as thoughts turn to restart.
- Last week, our manufacturing survey showed business confidence fell at the fastest pace on record (going back to 1958).
- Over half of manufacturing respondents said that the pandemic had resulted in a partial shutdown of their production in the UK, while over a quarter said that production had been shut down completely.
- But based on our existing economic intelligence, we can see the main channels via which companies are being impacted:
- First, on the demand-side:
- We know non-essential retailers, restaurants, hotels, cinemas (10% of economy). But also hits to transport, construction, estate agents, and automotive firms, among others, as well as a more general weakening in demand from across the economy. No one is unaffected.
- Second, on supply-side:
- Significant disruption to supply chains, from reduced production - domestically and globally – and operational disruption in the logistics sector and at ports.
- Impact being felt more widely than just those sectors that depend on globalised, just-in-time supply chains (such as automobiles and electronics).
- But businesses now reporting that Chinese production and some European production is coming back online.
- One of the challenges is this crisis is hitting some generations harder than others, and some regions harder than others.
- As thoughts turn to the restart, why does the discussion we’re focusing on today, around intergenerational impacts, matter?
- As we start to plan for more businesses to reopen, it’s vital as a country that we remain focused on the impact that this crisis will have on our economy overall, and who will bear the burden of that.
- I won’t touch upon the detail as Laura will be able to cover this much better than myself. But, taking just one aspect of this, identifying the different ways in which this crisis has affected different groups in our society can help us understand what it means for consumer behaviour and its ability to help power the UK’s economic recovery.
- We know that the younger generation and those on lower incomes are more likely to be at the sharp end of this. A generation that faced many issues, in terms of intergenerational fairness, before the crisis.
- Such as sluggish living standards limiting the ability of households to build up savings, alongside high housing costs.
- By identifying those most affected, we can ensure they get the bulk of the support needed to help them get back on their feet again, and our economy back on track as quickly as possible.
- On the government’s bounce back loan scheme, do we have an indication of what the repayment terms are likely to be? Will interest rates be increased further down the line?
- As the scheme has just been announced, we don’t have the detail on that yet. However, I wouldn’t expect to see punitive interest rates introduced further down the line.
- This is because the primary idea behind these support schemes is to keep businesses afloat so they may return to economic activity further down the line. In this context, punitive interest rates wouldn’t be logical.
- To Laura, you’ve done so much work on intergenerational fairness at the Resolution Foundation, both predating and during the crisis. So, can I start by asking you to set the scene in terms of the scale and nature of these issues in the UK, ahead of the outbreak?
- At the Resolution Foundation, we initially carried out public polling on public attitudes towards intergenerational fairness. The summary of our findings was that the public generally thinks each generation should have a better standard of living than the last. They also think that this is not happening for the current younger generation.
- Our subsequent analysis showed that the public’s perception had merit. For the core economic components of living standards, the younger generation do have it harder than their predecessors.
- It is important to note that across many other areas, such as societal progress and equality, there has been huge progress made for this generation. But in terms of the labour market, the acute impact of the financial crisis in 2008 impacted the younger generation. In the housing market the collapse in home ownership means millennials are half as likely to own a home as the previous ‘baby boomer’ generation were.
- To Laura, how has that picture changed, as a result of the pandemic and its fallout – and what are the likely future trends?
- Low earners’ jobs are at most risk on two fronts, employment and health. There is a clear age distribution. You are much more likely to work in a ‘shutdown’ sector if you are young.
- For those young people who are coming to the end of their education, and planning to enter the labour market, doing so at a time of crisis is bad. People who enter the job market a few years before or after a crisis do much better. We are worried about graduates this year or the next.
- Regarding the government’s support schemes, which are of course necessary, by protecting the prior earnings of existing workers, we are doing much less for young people who either haven’t got a job or are right at the start of their career.
- To be clear, we expect young people’s job prospects to be particularly affected by this crisis.
- To Laura, if we are looking at a cohort of young people whose prospects may be damaged for a significant time, what kind of mitigation measures could government or business put in place to help?
- It is rational for younger people to stay in education for longer if possible, i.e. going to a master’s degree so they do not enter the employment market just yet.
- A set of policies to help people catch-up on further education is a good thing for the government to think about. This could include more modular funding at the further education-level, so people can do more to improve their job prospects while not entering the labour market at a difficult time.
- For younger students at the A-level or 16-18 age bracket, the government could provide flexibility so they may go back and re-take exams if they were unhappy with the grades they attained.
- We have to recognise that we cannot hold back the tide as many young entrants will hit the labour market at a tough time.
- We need proactive labour market policy that works with businesses to get people from welfare to work.
- To Rain, we may be neglecting people who are 50 years + age. What are the lessons on how severe the impact of this crisis may be on older generations?
- This question is harder to address because older people remaining in the workforce is a relatively recent development.
- The adult re-training element becomes more important in this context. We need to keep in touch with the latest innovations in this space to help ensure no generation is disproportionately affected by this crisis.
- To Laura, what impact will the Coronavirus have on the younger generation and intergenerational fairness overall?
- The economic buzzword is ‘scarring’. We worry it will affect the younger generation for a long time.
- We looked at the scarring effects for young people entering the labour market, following education, during previous economic downturns.
- We found that this scarring can last between 7 to 8 years. This was particularly the case during the recessions of the 1980s and 1990s.
- In the last crisis (2008), we had a scarring effect on young people’s earnings and being stuck in a low-skilled and pay occupation. This lasted 5-7 years, even for people with graduate-level occupations.
- This time, those low-skilled jobs are the ones we have cancelled through the furloughing scheme. It may be the case that they do not come back. So, we could shift back to an unemployment scarring that looks more like the 1980s and 1990s.