Rishi Sunak will telephone some of Britain’s big employers on Thursday urging them to take on young people to kick-start his scheme © Izusek/Getty Images

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Chancellor Rishi Sunak will on Wednesday announce a £2bn job creation scheme to stop the UK’s young people becoming part of a blighted “Covid generation”, in an economic statement intended to stave off an unemployment disaster.

In a rare intervention, the Treasury will create a pool of “free labour” for companies, paying the minimum wage to up to 300,000 people aged 16-24 for six months from August.

The move will be part of a series of targeted measures to shore up the jobs market and boost confidence in Britain’s economy as it emerges from the coronavirus crisis.

Mr Sunak will on Thursday hit the phones to Britain’s big employers urging them to take on young people on the “kick-start” scheme. One ally of the chancellor said there was a “moral obligation” for companies to take part.

Conservative MPs also expect the chancellor to announce a temporary value added tax cut to bolster demand in the frail hospitality sector, which is the most exposed to a new era of social distancing and where many young people could lose their jobs.

“Young people bear the brunt of most economic crises, but they are at particular risk this time because they work in the sectors disproportionately hit by the pandemic,” Mr Sunak said.

He is also set to announce an immediate stamp duty “holiday” for purchases of homes at the lower end of the market, in another move intended to bolster the recovery and to help young people, according to Tory MPs.

Mr Sunak insists that the government’s furlough scheme, which has supported 9m jobs, will finish at the end of October, raising fears that an unemployment crisis will crystallise in the autumn. The chancellor will make his big Budget decisions later in the year.

Boris Johnson said this month that jobs cannot be kept in a state of “suspended animation”, but the prime minister and Mr Sunak have agreed that the state must help people stay in work or in training until the recovery is under way.

Young people dubbed “kickstarters” by the Treasury will be paid an average £5,500 each over six months — in line with the minimum wage — while the government will also pick up a £1,000 tab for administration. The aim would be for companies to pay nothing.

Businesses taking part in the scheme would be screened, with focus on an “additionality test” to ensure bosses do not axe staff only to hire dozens of “free” young workers next month.

Eligible young people, who are claiming universal credit or are at risk of long-term joblessness, will be paid the minimum wage for 25 hours a week. Employers will be able to top up that wage.

Kathleen Henehan, an economist at the Resolution Foundation, said the fund could potentially create three times as many jobs as a similar scheme that ran after the 2008 financial crisis. But she added that “delivery on this scale will be a huge challenge”, with local authorities’ involvement critical to create the jobs as quickly as needed.

The chancellor sees the Summer Statement as the moment he can change the government’s response to the pandemic from acting as a bridge through the worst of the crisis to supporting jobs as an economic stimulus boosts the recovery. 

Increasing borrowing and public spending and additional stimulus measures are expected to form part of Wednesday’s package. 

Garry Young, a deputy director at the National Institute of Economic and Social Research, said keeping support going for the economy made sense. “It is difficult to think of a better time than now for the government to invest more,” he said.

A lower rate of VAT for hospitality would be aimed at providing a shot in the arm for the sector. In 2015, the Treasury estimated a lower rate of 5 per cent for restaurants, pubs, cafés and canteens would cost the exchequer £9bn-£10bn a year.

Other ideas include a rise in the threshold for stamp duty to encourage more housing transactions, as well as possible reforms to corporation taxes to encourage business investment. 

With the Treasury ready to indicate that it has already bust its public spending targets this year by at least £30bn, Mr Sunak is likely to say that the government’s deficit has exceeded £300bn by some margin, pushing borrowing to its highest level since the second world war and far exceeding private sector forecasts for the deficit. 

In the chancellor’s plan, the third stage of his coronavirus recovery strategy would come in the autumn with a full forecast and an acknowledgment that these levels of public borrowing cannot continue.

Even though public debt is rising above the size of the economy for the first time in nearly 60 years, he would like to see the debt burden put on a declining path again by the time of the next election.

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