MPs are urging the Chancellor to ‘carefully consider’ targeted extensions to the coronavirus job retention scheme (CJRS), and whether the ‘triple lock’ state pensions should be maintained, as part of the government’s response to Covid-19
The suggestions are among several recommendations in a second report from the Treasury select committee’s inquiry into the economic impact of coronavirus.
This looked at the medium-term challenges that have emerged as the economy comes out of lockdown, which include supporting the recovery of consumer spending, minimising long-term unemployment increases, and dealing with elevated levels of corporate debt.
The committee says effectively targeted assistance to those who need it is important, but it is not clear whether the CJRS is good value for money in its current form. It is particularly sceptical about the value of the CJRS bonus, saying most of the funds will be spent on workers who would be retained anyway.
MPs also signalled concerns about how the government expects business to pay back Covid support loans in the future.
The inquiry highlighted a potential significant lack of capacity and willingness for the private sector to step in to provide solutions for corporate indebtedness, especially amongst SMEs.
The report said viable SMEs struggling with debt will prolong the recession, and said the government must develop solutions for ensuring the recapitalising of their balance sheets. The committee wants the government to outline a plan for this within the next three months, saying it should think ‘creatively’ about potential interventions.
In addition, the changes to universal credit, which include raising payments and making it easier to access, should be extended beyond the current one-year limit, and the government should also examine the adequacy of, and eligibility for, sick pay.
The select committee report called for a roadmap from the Chancellor setting out how he intends to place government finances on a sustainable footing, given the sharp rise in the level of public debt, and possibly an ongoing rise in borrowing.
MPs said introducing tax increases too early is likely to stifle economic recovery. The committee also said the continued VAT cut on hospitality and leisure may not be enough to encourage consumers to continue to spend, and the Chancellor should consider whether additional measures to stimulate consumption are warranted at the next fiscal event.
The report pointed out that the Conservative Party Manifesto 2019 pledged to maintain the state pension triple lock, which guarantees that pensions will increase by whichever is highest out of average earnings growth, CPI and 2.5%.
However, average earnings growth will be artificially high due to the CJRS having depressed average earnings.
The report stated: ‘The government, therefore, must be willing to be flexible, even on manifesto commitments, in response to the crisis. Lifting the triple lock next year is a sensible proposal that should be carefully considered.’
Mel Stride, chair of the Treasury committee, said: ‘The Chancellor should carefully consider targeted extensions to the CJRS and explain his conclusions.
‘The key will be assisting those businesses who, with additional support, can come through the crisis as sustainable enterprises, rather than focusing on those that will unfortunately just not be viable in the changed post-crisis economy.
‘This requires a very difficult set of judgements; it is where careful analysis and creative thinking will be critical.
As the Committee has said throughout the crisis, the Chancellor must continue to show flexibility in his approach.’
The Treasury committee’s first report from this inquiry was called Gaps in Support, and called for government action to help the million-plus people affected by what it called ‘the significant gaps’ in the government’s support schemes.
It included recommendations to help some categories of self employed, directors of limited companies, freelancers and contractors.
Stride said the committee’s ‘disappointment’ that the government had not adopted its suggestions ‘persisted’.