Government now faces tricky dilemma on PUP wind-down
When the history of Ireland’s handling of the pandemic is written in years to come, the economic impact and the response of the Government to it will be a key focus.
And central to that analysis will be the role played by, and the effectiveness of, the Pandemic Unemployment Payment or PUP.
Introduced almost overnight in March of 2020, as a country gripped by fear and anxiety stared into its first Covid-19 lockdown, the payment was designed to prevent a massive income shock to the hundreds of thousands of people who lost their jobs in an instant.
At its peak in May of last year, the PUP sustained as many as 605,000 people across all sorts of sectors and in total more than 900,000 have received at least one payment at some point over the last 18 months.
In the intervening period, the cost of the safety net has steadily climbed to over €8.58bn – a huge amount of money by any measure – propelling the budget deficit this year to an expected figure of over €20.3bn.
Little wonder then that the Ministers for Public Expenditure and Finance were keen to have the economy reopen as quickly as possible and the payment wound down, to stem the financial haemorrhage.
In June, the Government’s National Economic Recovery Plan outlined a glide path for the gradual disappearance of the PUP.
It started (after a short delay) in July with its closure to new entrants and will be followed two weeks from now by the ending of payments to those in full-time education and the beginning of a three-stage reduction of rates, until they fall in line with standard job seeker welfare rates in February.
But in July, the expectation was that come September, the Covid-19 threat would have substantially abated thanks to widespread vaccination take up and the economy would be primed for a full reopening.
Instead, the reality is that new case numbers are running at around 2,000 a day and the current Delta variant wave is not expected to peak until the middle of September or perhaps later.
The result is that the Government is likely to have to employ a more cautious and gradual approach to full reopening the outstanding sectors that remain partially or substantially closed.
Of these there are many – capacity in pubs and restaurants is limited, nightclubs remain shuttered, aviation and ferry operations remain a small fraction of pre-pandemic levels, the events and live entertainment sector is largely on ice, some tourist providers are operating with lower numbers of visitors – the list is long.
Many people, therefore, remain out of work, and the numbers exiting the Pandemic Unemployment Payment have slowed down over the past fortnight.
This week there were still 150,000 people in receipt of the PUP.
That was down just under 4,000 on a week earlier, when a similar number also signed off and went back to work – a clear indication the rate of reduction is stalling.
With so many people still out of work (remember there were also 184,000 other people on the Live Register at the end of last month), the Government faces a dilemma.
Proceed with plans to wind down the payment? Or provide a further reprieve for recipients in the sectors still under restrictions?
The chorus of calls from the opposition and unions for rates to be maintained as they are, rather than being cut from 7 September, is growing.
In the last week the Irish Congress of Trade Unions told the Taoiseach that it was its “strong contention that those workers in sectors as yet not operational due to ongoing Covid-19 restrictions should not be denied full PUP payments as the prevailing circumstances continue to be outside of their control.”
Sinn Féin has been making similar arguments, accusing the Government of abandoning the workers concerned.
“While sectors remain closed, the incomes of those who worked in those sectors must be protected,” the party’s enterprise spokesperson, Louise O’Reilly said. “I am demanding that these upcoming cuts to the PUP are immediately stopped.”
But the difficulty for those in power is two-fold.
First, the longer the PUP remains in existence, and at the full levels it currently is paid at, the more it is going to continue costing the exchequer.
There is no bottomless pit of money and funding for the payment is borrowed, adding to an already ballooning national debt.
An extension of the current rates would also be likely to provoke frustration in the business community.
Few who staycationed this summer would have failed to notice the preponderance of signs in shop, restaurant and pub windows all over the country seeking staff.
Anecdotally (and confirmed by representative business groups) employers claim there is a chronic shortage of workers in a range of traditional low pay sectors, like hospitality, retail and personal care.
There are several, often sectoral specific, reasons why staff are in short supply, including foreign workers who returned to their home countries earlier in the pandemic not returning and others switching sectors because they didn’t see a future in an industry in permanent lockdown.
Nonetheless, business leaders are convinced that the current rates of the PUP are acting as something of an impediment to getting people back to work.
“The PUP does need to be tapered off because the economy is substantially reopened now,” Danny McCoy, Ibec CEO told RTÉ’s News at One this week.
He acknowledged some sectors are still closed.
“But overall…over this summer we’ve seen that the PUP has been a significant issue in enticing people back to businesses that are open.”
The simplistic explanation that is often proffered is why would someone go back to work for 40 hours a week for €250, when they can sit at home watch Netflix and receive €350.
Clearly, the reality in many cases is more nuanced than that – for example, with some sectors running at reduced capacity, people are being offered a return to work on partial hours and therefore lower pay, making the PUP a more stable bet.
Also, unless you are self-employed, you can’t be earning anything and claiming the PUP simultaneously. It is one, or the other, not both.
But of the almost 150,000 people still in receipt of the payment, 30,346 were in the accommodation and food service sector and 30,346 worked in wholesale and retail.
So clearly, anything that might encourage some of them back to work where there are stable vacancies paying sufficient wages would improve the outlook for employers.
Resolving the dilemma won’t be straightforward for the Government and so far there doesn’t seem to be any sign of a shift in position on the PUP wind-down brewing.
Danny McCoy did seem to suggest on the radio that employers would view sympathetically further targeted support for those workers awaiting the reopening of still largely closed sectors.
But even if the Government were to decide that some PUP recipients from such industries should have payments continued for a period, how would that work?
How would it be objectively decided who could retain it and who would have their rates cut?
It is another sticky wicket. Expect the opposition to continue to try to make hay on the subject though.
As difficult as it was setting up a whole new welfare category overnight last year, winding it down was always going to be considerably harder for the Government.