The government is facing growing pressure to relaunch furlough and other emergency financial support schemes after imposing working from home orders in England because of the rapid spread of the coronavirus Omicron variant.
Business leaders and unions warned failure to provide assistance to companies and their workers in the hardest-hit sectors of the economy risked squandering progress made since the easing of pandemic restrictions earlier this autumn.
Some reacted with anger, accusing the prime minister of trying to “save his own skin” by announcing the curbs in order to divert attention from the week’s political scandals.
Ruby McGregor-Smith, president of the British Chambers of Commerce, said: “The government must once again stand shoulder to shoulder with business and provide a package of support to ensure that we get through a challenging winter without serious damage to our economic recovery.”
Warning that Treasury support and steps to fix the sick pay system were glaring omissions from the government announcement on tighter restrictions, union leaders said furlough would be needed for the hardest-hit sectors of the economy.
Frances O’Grady, general secretary of the TUC, said: “Requiring people to work from home over the busy Christmas period will hit jobs – unless ministers bring back furlough. Cleaners, receptionists, conference and banqueting staff and hospitality and retail workers will be short of work if people don’t come into offices,” she said.
“Ministers must reassure workers in hard-hit sectors like hospitality, leisure and travel that their livelihoods are secure.”
Manuel Cortes, general secretary of transport union TSSA, said: “Many more workers are going to feel the pinch as plan B kicks in. The government must bring back the furlough job retention scheme to ensure no one loses their jobs as a result of the new restrictions.”
Boris Johnson has told employers in England their staff should work from home where possible from Monday and announced mandatory vaccine passports for nightclubs and venues hosting large crowds.
Matthew Fell, chief policy director at the CBI, said the fresh restrictions were a “big setback for businesses”, especially in hospitality, retail and transport at a key time of the year for sales during the festive period.
“It will be vital that the impact of these restrictions is closely monitored, and that the government is ready with targeted support as required,” he said.
Even before Johnson’s Wednesday announcement, concern about Omicron had already dented consumer confidence, hitting sectors of the economy where face-to-face interaction is most prominent – such as in hospitality, travel and leisure.
Pubs, hotels and restaurants had already reported a wave of Christmas party cancellations, while tighter controls on foreign trips meant travel and tourism firms have suffered a drop in winter holiday bookings.
Michael Kill, chief executive of the Night Time Industries Association, said the new rules would have a “devastating impact” on venues and questioned the timing of the announcement.
“Is this sound evidence-based public policy making or is this an attempt to move the news agenda on from a damaging story about the Downing St Christmas party? It feels that nightclubs and bars have been thrown under the bus by the prime minister for him to save his own skin.”
The trade body, which represents nightclubs, theatres and other venues, said its members’ businesses in Scotland and Wales – where similar steps to those being planned for England have already been announced – had seen a drop in trade of up to 30%.
Hospitality industry leaders said there had already been a downturn in business due to mixed messages from the government, while warning that orders for office staff to work from home would hit footfall in city centre establishments over the crucial Christmas period.
Alex Proud, the owner of the three Proud Cabaret venues in London and Brighton, said bookings were down by more than a quarter already, while the passport scheme would trigger further cancellations. “This is armageddon for us. It’s a disaster that doesn’t need to happen.”
Martin Williams, the boss of M Restaurants and the Gaucho steak chain, said jobs in the hospitality sector would be put at risk. “Any government measures need to be offset with further support to our sector in terms of an extension on business rates and a permanent VAT reduction,” he said.
Despite fears over the fallout from the latest measures, economists said the new controls were relatively light touch compared with earlier phases of the pandemic, meaning a relatively muted impact for the economy as a whole.
Paul Dales, chief UK economist at the consultancy Capital Economics, said plan B would probably shave between 0.2% to 0.5% from GDP. “It feels fairly small, if people don’t buy train tickets, go to work or the pub near the office. It’s very different to shutting all retailers and hospitality,” he said.
However, the launch of tougher controls such as the closure of non-essential retail, hospitality and schools would cause more damage. This could trigger a 3% fall in GDP in January, Dales said. Analysts at Barclays said the economy could be dragged down by between 4% and 5% in the first three months of 2022 in such a “worst case scenario”.
Economists are increasingly expecting the Bank of England will hold back from raising interest rates when its monetary policy committee meets on Thursday next week.
However, the impact could be mitigated because businesses have adapted and found ways to continue trading through periods of restrictions and lockdowns, for example by using online channels. In a sign of the progress made since the start of the crisis almost two years ago, the US investment bank Goldman Sachs said it expected that under a “downside scenario” with “nationwide restrictions” imposed for three months, the economy could sink by just 1.7% in the first quarter of 2022.
It stands in stark contrast to a collapse of almost 20% in the second quarter of 2020 during the first wave of Covid-19, amid the worst economic slump ever recorded.
However, any move to further tighten controls would trigger an immediate contraction in the economy and turbocharge demands for emergency economic support measures such as business grants, loans, tax cuts and furlough.
Dales said: “If the chancellor didn’t revive the furlough scheme the fall in the economy would be bigger or last longer.”