The economic pain has hardly begun – Rishi Sunak must help create jobs

Tens of thousands of tenants could lose their homes when the ban on evictions ends in seven days’ time, as we report today. This hardship will probably be one of the early economic effects of the shockwave caused by the virus and the measures to contain it. Last week’s jobs figures, for example, showed that although the number of hours people spent working fell by a fifth, unemployment has hardly increased yet.

Some indicators suggest that economic activity has bounced back sharply from the extraordinary drop in March. But like a ball, the economy is not going to bounce back to as high as it was when it was dropped, and there is more hardship to come. There is certain to be a big rise in unemployment as the furlough scheme is wound down by the end of October. That will not only cause misery in the short term, it will risk causing long-term damage as people lose touch with the labour market, while the dearth of social housing will make matters worse.

What is to be done? The Labour Party is arguing that the ban on evictions should be extended, and that the furlough scheme should continue for those industries that are particularly badly hit. We understand the case for compassion, and there needs to be a generous approach to the worst cases of people suffering through no fault of their own, but the most effective form of compassion now is to switch from trying to protect people from the recession to trying to create the new jobs that will get them out of it.

As Jonathan Portes of King’s College London has argued – and he is no free-market fundamentalist – the furlough scheme is now preserving a number of “zombie jobs” that cannot be saved. It makes more sense for public money to be devoted to subsidising new jobs than to prolong ones that no longer really exist.

He proposes subsidies for new jobs, new self-employment and new businesses, and expanding public-sector employment, especially in social care and education. In addition, he suggests substantial further increases in universal credit – both to alleviate poverty directly and to pump money into the economy to sustain consumer demand.

If anything, his prescription is more expensive than simply extending the furlough scheme, but better focused. The same argument applies to the rented housing market: the cause of the problem is not evictions, but that tenants do not have the jobs that enable them to pay their rent.

Rishi Sunak, the chancellor, was right to preserve jobs, and the government was right to impose a temporary ban on evictions, but the priority now is to create the jobs of the future rather than to preserve the jobs of the past.