Monday, June 14, 2021

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    ALEX BRUMMER: Averting a jobs tragedy

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    ALEX BRUMMER: Yet more spending will be necessary to tackle the Covid-19 growth and jobs catastrophe

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    Disentangling the latest jobless figures is a nightmare. 

    But it goes without saying that, as furlough is phased out and firms wake up to the realisation that they can operate effectively with fewer workers, the numbers will zip up.

    The lockdown and pandemic are life-changing experiences for many, which is why payroll numbers have tumbled by 730,000 since March, with many joining the economically inactive.

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    The lockdown and pandemic are life-changing experiences for many, which is why payroll numbers have tumbled by 730,000 since March, with many joining the economically inactive

    What is clear is that Covid-19 has proved devastating for the UK’s employment miracle, with the Bank of England forecasting 7.5 per cent joblessness by year-end and private sector forecaster Goldman Sachs projecting 9.5 per cent.

    These are outcomes which, for a younger generation of people unfamiliar with the privations of 1980s or more recently the aftermath of the financial crisis of 12 years ago, will be shocking and unfamiliar.

    The big question is: what to do?

    There are a series of micro-economic steps that can be taken, notably making sure that apprenticeships and skills training are powered up. 

    The bottom line is that macro policies, in the shape of fiscal and monetary support, will be necessary to tackle the Covid-19 growth and jobs catastrophe. 

    It might seem perverse at a moment of eye-watering deficits and national debt but the best way of creating growth is through incentives. 

    Chancellor Rishi Sunak’s summer eats scheme, to fire up the hospitality sector, shows how the economy can be brought back to life.

    Extending the moratorium on business rates and carefully targeted VAT cutbacks could avert more high street implosions. 

    Further breaks on the employer’s contribution to national insurance, postponing rises in corporation tax and improving the R&D tax regime would all support employment.

    If revenues do have to rise to pay for such measures then it must be time for a swingeing tax on digital clicks on the Silicon Valley giants and to abolish the tax relief that big corporations and private equity enjoy for debt financing.

    The Bank of England has reached deep, with £300billion of extra quantitative easing. It can do more and one would expect a further £100billion of monetary expansion before year end. 

    This would ensure the banking system doesn’t clog up and shore up the £530billion of deficit financing required in 2020-21.

    There also is a case for making permanent the temporary £20-per-week rise in universal credit. Yes, it may be seen as a shirkers’ charter.

    Providing safe space for those who have become economically inactive after a global emergency is the least to be expected from a civilised society.

    All’s Wells

    Nobody could accuse Mike Wells of sitting on his hands in lockdown.

    The Prudential chief executive has speeded US insurer Jackson Life to the finish line for an initial public offering or demerger in January 2021.

    Jackson has been recapitalised and gained a credit rating. Wells prefers a partial float, releasing capital for Asia, but accepts that if market conditions aren’t right then the Pru would go for a M&G style demerger to existing investors instead. Hopefully, the big focus for Wells is Asia and Africa.

    Pru is going gangbusters there, with its Pulse online operations fuelling a 14pc uplift in operating profits and a distribution deal in Thailand. The commitment to Hong Kong and China looks firm in spite of the ‘fever pitch’ in Sino-American relations.

    The shock for investors will be rebasing the dividend at one-third of previous levels. The timing is less than fortuitous. Investors are asked to get their heads around the notion that the divi is a relic and now shared among M&G, Jackson and Asian Pru.

    As a growth insurer Pru wants to keep capital strong, reduce debt and finance growth. The dividend is taking the strain but the shares keep rising.

    Soft power

    Making head or tail of Softbank’s dizzying pace of deals is hard. But a disposal of its stake in T-Mobile, after the merger with Sprint, and a surge in the value of soon-to-float Vision Fund holdings Lemonade and Big Commerce Holdings has eased pressure on chief executive Masayoshi Son.

    Speculation continues that a diminished Cambridge-based Arm Holdings is next down the slipway.

    Someone in Whitehall needs to wake up to this fast.

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