Three former chancellors have warned the government to prepare for 1980s levels of unemployment as the coronavirus crisis sinks Britain into the deepest recession in living memory.
Lord Alistair Darling, George Osborne and Philip Hammond said the government urgently needed to announce measures to cushion the blow as job losses began to mount.
Darling, who as Labour’s last chancellor led the response from No 11 to the 2008 financial crisis, told the Commons Treasury committee: “We need to get ourselves into the frame of mind where we’re thinking about 1980s levels of unemployment.”
Osborne, his Conservative successor, also suggested the current economic collapse could trigger mass unemployment. “There will be loads of people in businesses that have gone bust that aren’t going to return, and people who are coming off furloughs into unemployment. That is going to be a big social challenge, and of course economic challenge, for this government,” he said.
Britain’s unemployment rate peaked at almost 12% in 1984 during the period of de-industrialisation overseen by the Thatcher government.
The Bank of England has warned joblessness could more than double from the current rate of 3.9% by the end of the year as Covid-19 and lockdown measures used to contain the virus bring the economy to a near standstill.
The former chancellors’ interventions come as the current chancellor, Rishi Sunak, prepares to scale back the government’s furlough wage subsidy scheme from August.
As lockdown restrictions are rolled back in an attempt to reopen the British economy, Sunak is believed to be working on a fresh package of policy measures, including job creation initiatives, expected to be announced in July.
Darling said if he were still chancellor he would be getting the whole of government involved in drawing up measures to keep people in work or to help them retrain if they lost their job.
“Government needs to be planning. Let’s just assume things are going to be worse – it’s better that it’s good and well – but don’t leave it too late because it does take a long time to put these things in place,” he said.
Darling and Hammond warned Sunak against embarking on a fresh round of austerity to tackle rising government borrowing, saying he should pursue pro-growth policies to ensure a stronger economic recovery takes hold.
Hammond said: “In the recovery phase, the next two years, where the debt as percentage of GDP is not the primary concern we should be addressing.”
However, Darling suggested the continuing health risks of Covid-19 meant the government was not yet ready to boost the economy fully.
Osborne said the government would either need to impose cuts or raise taxes once the pandemic had passed. He said: “Sadly we are poorer than we thought we were, and either we’re going to have to raise more in revenue or spend less than we were planning.”
All three former chancellors warned Boris Johnson of the mounting risks of failing to reach a trade deal with Brussels before the end of the Brexit transition at the end of this year.
Hammond, who served under Theresa May, said a “quick and dirty” arrangement was required to avoid crashing out of the EU. Osborne said both sides would probably agree a limited deal to avoid “going off a cliff”.
Darling added: “No-deal would be absolutely disastrous. With everything we’re going through with Covid you’d have to be mad to want to end up with a situation where you erect huge trade barriers and tariffs just at the time you hope your economy might be beginning to recover.”