By Powerscourt on 25/09/2020
UK Chancellor of the Exchequer Rishi Sunak is trying to use the coronavirus crisis as a catalyst for a moment of complete digital transformation for the UK. It’s a high-risk gambit for jobs and for the government, likely to be unpopular in the short term, but ultimately could kick-start healthy economic growth.
The Winter Economy Plan unveiled yesterday is, depending on your perspective, a once in a generation attempt to reboot Britain for a post-COVID world or a betrayal of a generation of beleaguered workers.
What is certain is that further jobs will be lost from the UK economy over the coming months as the government tries to wean Britain off the furlough scheme, which has paid the wages of millions of employees who were unable to work during the first wave of the crisis.
Sunak’s new Job Support Scheme, unveiled on Thursday, is a combination of wage top-ups and cash flow support. It means the government will effectively subsidise the pay of employees who are working fewer than normal hours than usual as a result of the crisis to bring them as close as possible to the pay levels they enjoyed during the furlough scheme, but it will remove the safety net which the furlough scheme has provided since the start of the crisis.
The Chancellor is positioning this as a way to slough off outdated working practices and jump-start Britain’s economy.
“We need to create new opportunities and allow the economy to move forward and that means supporting people to be in viable jobs which provide genuine security,” he said.
But he’s also been frank that this will mean rising unemployment. “I cannot save every business. I cannot save every job.” The Institute for Fiscal Studies (IFS) has suggested that up to two million people could lose their jobs by the end of the year.
Sunak’s emphasis on “viable” jobs may in part be a way to accelerate a digital revolution across Britain – forcing companies to accelerate a digitisation strategy which should have been underway before but for which coronavirus has shown an urgent need.
In part, this is as simple as businesses waking up to the need to make sure remote working actually functions properly. But it also points to a need to restructure society digitally at a much more fundamental level by overhauling outdated infrastructure: something which will require significant investment by governments and businesses and has the potential to drag economies out of the coronavirus slump when the threat from the virus recedes.
As if to underline the growing economic gulf between the old world and the new, Palantir Technologies, the hotly-watched data mining software specialist, is reported to be heading for a market valuation of nearly $22 billion in a US IPO planned for September 30.
The contrast between the increasingly bulletproof technology sector and the “real” economy could not be clearer. These soaring valuations may not last forever, but for now companies who are well adapted to distributed working are winning.
Meanwhile, the much-feared “second wave” is well underway across the world, with the global death toll from the virus nudging 1 million. The UK recorded 6,634 new cases on Thursday. France set a new record for daily cases, recording 16,096 confirmed cases. Israel, which has the highest rate of coronavirus per capita in the world, is continuing to tighten already tough restrictions, shutting the majority of workplaces and limiting religious gatherings. In a sad sign of how coronavirus has impacted Brazil, the iconic Rio de Janeiro carnival parade has been cancelled for next February.
Asian stocks rose early Friday after US housing data supported a tech driven rally Thursday.
WHAT ARE COMPANIES SAYING?
Consumer & Retail
Fashion retailer Boohoo has said an independent review into allegations about working conditions and low pay had found many failings in its Leicester supply chain and had recommended improvements to the company’s corporate governance. The company said: “Ms Levitt is satisfied that Boohoo did not deliberately allow poor conditions and low pay to exist within its supply chain, it did not intentionally profit from them and its business model is not founded on exploiting workers in Leicester”.
US motorcycle maker Harley-Davidson is wrapping up its India operations as the country’s vehicle industry struggles through a severe crunch brought on by the coronavirus pandemic. The brand, which set up manufacturing and sales operations in India a decade ago, failed to take off owing to high prices and competition from local vintage bike brands like Royal Enfield. Harley-Davidson may opt to extend its presence in India through a tie-up with an India automaker, according to local media. It joins a string of foreign vehicle manufacturers who have wrapped up their businesses in the country, including General Motors and Ford. Harley-Davidson’s India sales have been a frequent source of trade tension between President Donald Trump and Prime Minister Narendra Modi. Trump has held up high tariffs on imported bikes as an example of India’s unfair treatment of US businesses, prompting Modi to reduce them from 100 per cent to 50 per cent. But, with its local manufacturing unit closing, Harley-Davidson is likely to be more dependent on imports.
The airline has today said it is likely to cut the number of flights it runs in October to half of last year. It said the said the drop in demand also meant its winter programme would also be cut to similar levels, meaning no pick-up for the key Christmas holiday period. That marked a scaling back of its previous hopes of running at 60 per cent capacity announced on 1 September, which was itself a scaling back’s as it battles the raft of travel restrictions and quarantine rules. The European airline said the drop in demand also meant its winter programme would also be cut to similar levels, meaning no pick-up for the key Christmas holiday period. That marked a scaling back of its previous hopes of running at 60 percent capacity announced on 1 September, which was itself a scaling back of its 80% guidance before.
Financials & Real Estate
Kazakh banking and fintech firm Kaspi has announced that it intends to list on the London Stock Exchange, reviving plans it abandoned a year ago. The company, which controls the third largest bank in Kazakhstan and operates a payments and ecommerce business, said it plans to sell shares held by owners including Baring Vostok funds, Goldman Sachs, Kaspi.kz board chairman Vyacheslav Kim, and its chief executive, Mikheil Lomtadze. Reuters reported yesterday that Kaspi had decided to try again for a London listing after Yandex’s planned purchase of Russian online bank Tinkoff established a comparative valuation. Kaspi’s popular mobile app has made it a household name in the oil-rich Central Asian nation of 19 million. But it sought to stress in its statement the growing share of non-bank income in its consolidated profit which comes from ecommerce and payments, sectors boosted by the pandemic. The company did not say what stake its shareholders intended to sell or how much they were looking to raise. Previously, sources told Reuters it was aiming for $500-700 million.
European governments will pay claims above an agreed limit against AstraZeneca over side-effects from its potential COVID-19 vaccine, under different terms to a deal struck with Sanofi, an EU official told Reuters. The deals reflect different strategies by two of the world’s top drugmakers for protecting themselves as a debate rages about liabilities for vaccines aimed at ending the pandemic. AstraZeneca has secured the European Union’s backing in a confidential agreement which reflects the lower price sought by the British drugmaker, the official said. “If a company asks for a higher price we don’t give the same conditions,” said the official, who was involved in the talks but declined to be identified as the contracts are confidential. Unexpected side-effects after a drug has regulatory approval are rare, but the speed at which a COVID-19 vaccine is being pursued increases the risks of unforeseen conditions. The deal with AstraZeneca, which shifts some of the risks involved in the roll-out of a vaccine to taxpayers, was struck in August and its liability clauses have not previously been reported. Under the deal, AstraZeneca would only pay legal costs up to a certain threshold, the official said, declining to elaborate on how the costs would be shared with individual European governments or the cap. The financial shield would cover both legal costs and potential compensation, which is rarer but potentially a much bigger outlay in the event of something going wrong. Under the AstraZeneca deal, EU countries have agreed to pay 2.5 euros per dose, while Sanofi has negotiated a price at around 10 euros, the official said.
IN THE NEWS
Sunak sets up moment of truth for UK jobs market – Financial Times
Furlough replacement: Job fears as Rishi Sunak scales back rescue plan – The Times