The US Debt Ceiling Crisis Explained!

Update to article: 8 October 2021:

The US Senate has voted to temporarily raise the nation's debt limit, avoiding a historic default that experts say would have devastated the economy. Senators agreed to increase the limit by $480bn (£352bn), which will cover the US until early December.

The bill was approved in a 50-48 vote, following weeks of partisan fighting.

The breakthrough came less than two weeks before the US was set to be unable to borrow money or pay off loans for the first time ever.

The bill now must be approved by the House of Representatives and will then be sent to President Joe Biden to be signed into law.

The vote in the upper house of Congress came after Republican Senate leader Mitch McConnell offered his support for a short-term extension. Senate Republicans have previously said that raising the debt limit is the "sole responsibility" of Democrats because they hold power in the White House and both chambers of Congress.

Original article: 7 October 2021:

US lawmakers are once again locked in a dangerous game of brinkmanship over lifting the debt ceiling. Treasury Secretary Janet Yellen warned Congress last week that the country will reach its ceiling by 18 October, which (at the time of writing this article) is only 10 days away.

Republicans are daring Democrats to resolve the conflict alone, but Democrats say they are being reckless. The showdown has prompted fears of a default on the national debt. A default is unlikely and has never happened in US history but would have catastrophic implications for the US and the global economy.

What is the debt ceiling?
The US government spends more money than it collects in taxes, so it borrows to make up for the shortfall.

Borrowing is done via the US Treasury, through the issuing of bonds. US government bonds are seen as among the world's safest and most reliable investments.

In 1939, Congress established an aggregate limit or "ceiling" on how much debt the government can accumulate.

The ceiling has been lifted on more than 100 occasions to allow the government to borrow more.

As the country has become more bitterly partisan, lawmakers have used the debt ceiling vote as leverage against other issues.

In a 2013 standoff, the last time the US was in serious danger of going over a "debt cliff", Republicans put up a blockade over the spending plans of Barack Obama.

Lawmakers typically back down at the eleventh hour.

Who owns US debt?
US Citizens, probably. The Social Security Trust Fund buys a lot, along with pension funds and institutional investors. Creditors also include foreign nations, like China and Japan, although they do not own anywhere near a majority of the US debt.

What happens if the debt ceiling is not raised?
Treasury Secretary Janet Yellen has been warning Congress for months about the consequences of not raising the limit. The US technically reached its limit in August, when a two-year reprieve Congress passed in 2019 expired. The Treasury Department has been moving things around to cover costs since then.

For the first time ever, sometime in the second half of October, the US would default on its debts - which currently stand at around $28tn (£21tn).

Such an event would cause delays to every single government programme and affect federal funding for individual states.

Default may also trigger a spike in interest rates and ruin America's creditworthiness, making the US a more expensive place to live and damaging the economy. It would also bring turmoil to the stock market.

Not raising - or temporarily suspending - the debt ceiling also threatens the health of the global economy.

Investors around the world may sell off US assets and become less trusting of the US dollar.

The International Monetary Fund (IMF) has called for an end to Washington's "counterproductive brinkmanship" over the debt ceiling. It also suggested the cap should be replaced with an alternative financial mechanism.

Why is there a standoff over the debt ceiling?
There are 50 Democrats in the Senate, but unless they end the filibuster, it will take the agreement of 10 Republicans to get a vote on the debt ceiling.

How has this worked in the past?
In the past 50 years, according to the Treasury Department, Congress has acted 78 times to raise the debt limit. That includes 49 times under Republican presidents and 29 times under Democratic presidents.

The last time lawmakers voted to raise the debt limit, it was a bipartisan affair. They raised the limit for a time period -- two years -- instead of a dollar amount, as in many previous votes.

What are Democrats saying?
On Monday, President Joe Biden condemned what he called "hypocritical, dangerous and disgraceful" Republican opposition. Mr Biden said it amounts to "playing Russian Roulette with the economy".

Democrats have pointed out that raising the debt ceiling is about paying off existing obligations rather than paying for new ones, and that Mr Biden's policies have only contributed to 3% of existing debts.

They also note that, during Mr Biden's predecessor Donald Trump's term, they joined with Republicans to raise the debt ceiling three times.

What are Republicans saying?
Senate Republicans have said raising the debt limit is the "sole responsibility" of Democrats because they hold power in the White House and both chambers of Congress.

Minority Leader Mitch McConnell tweeted last month that his party "will not facilitate another reckless, partisan taxing and spending spree".

Two attempts to vote on the debt limit have already failed in the Senate and the deadline set out by Ms Yellen is fast approaching.

How might this get resolved?
Amid this week's negotiations, Senator McConnell has proposed two possible options.

He has said Republicans may be willing to come along with Democrats on raising the debt ceiling temporarily through December.

Alternatively, he offered an expedited reconciliation process, in which Republicans would agree to limit floor debate and amendments in order to shepherd the legislation through the Senate quicker.

Democratic leaders had previously indicated that using the tool of reconciliation would not be palatable to them, as it would create dual tracks of legislation - to raise the debt limit and to separately pass the Democrats' social spending bill.

But they have delayed a third attempt to bring up the debt ceiling measure through regular order in the Senate so that the party can contemplate Mr McConnell's offer.

Should you be worried?
Failure to raise the debt ceiling in time could halt payments that millions of Americans rely on, including pay checks to federal workers, Medicare benefits, military salaries, tax refunds, Social Security checks and payments to federal contractors.

It could cause job losses, a shutdown of tens of billions in Covid-19 economic recovery aid still set to be delivered, a near-freeze in credit markets and gross domestic product taking a tangible hit that could last for multiple quarters.

A Goldman Sachs report has estimated the US Treasury may need to halt more than 40% of expected payments and financial aid to US households.

The Pentagon released a statement on Wednesday expressing concern that service members too may not be paid in full or on time.

The American people may see the value of their retirement accounts shrink, interest rates go up and their mortgage and car payments increase.

President Biden recently said: "Defaulting on the debt would lead to a self-inflicted wound that takes our economy over a cliff and risks jobs and retirement savings, Social Security benefits, salaries for service members, benefits for veterans, and so much more."

Are young homeowners nearing extinction?

It’s no great secret that, despite the economic woes that have been exacerbated by the ongoing COVID pandemic, property prices remain high.

Property experts and economists constantly analyse market conditions attempting to identify the trends, patterns, and fluctuations that affect the real estate market and the wider economy - and the underlying trend of these predictions is that the upward trajectory of property prices remains unsustainable, despite the fiscal interventions of government.

However, the past year has seen an explosive demand among buyers seeking to upgrade, downgrade, or buy their first home; despite the devastating effects that the global pandemic has had on economies and the obvious hardships experienced by workers.

Despite what we’ve all been through over the past 12 months, property prices in the UK have risen by an astonishing 10%, and the US has experienced a 13% increase in the same period.

In more normal economic times, those seeking to get a first foot onto the property ladder would be constantly scanning the market, reading up on the latest market analysis, and listening to the experts - trying to gauge when the right time to buy is whilst diligently saving as much money as they can to achieve their property ownership goals.

But these are not normal times, and it appears that those first-time buyers, who are able to, are desperate to get on that ladder now, seeking to take advantage of high loan-to-value mortgages and low interest rates - ignoring the possible threat of a future crash.

So, what is driving this fever pitch in the market? And what is the outlook for young people looking to get on the property ladder during COVID and beyond?

Why pay for someone else’s property?
If we look at some very basic math, we can see why so many people in the UK want to own their own property. The average monthly mortgage repayment is currently £723, whilst the average rental payment is more than £1,000 per month.

In the US, whilst the margins are narrower with an average mortgage repayment of $1,275 per month against an average rent payment of $1,219 there is still sound reasoning in favour of home ownership.

Generally speaking, home ownership remains a positive long-term investment. Go back 60 years and you will find that the average house price in the UK was £2,530 (approximately £55,784 in today’s money). These days, you would pay that for just a few months’ rent! And that property your parents or grandparents bought for £2,530 in 1961 would now be worth 100 times more as today’s average UK house price is £255,000.

Disposable income
Figures estimate that the average income in the UK currently stands at £29,600 per annum after tax – that equates to more than £2,400 per month – and taking into consideration typical monthly expenses that still leaves a considerable amount of disposable income; making the average first-time buyer’s monthly mortgage repayment of £723 seem highly affordable.

In the US, whilst there are huge fluctuations state-by-state, the average income is pegged at around $53,500 per annum (after taxes) providing a monthly wage of more than $4,400 – and even considering the most extravagant of tastes its more than reasonable to assume there would be enough disposable income left to afford an average monthly mortgage repayment of $1,275.

These figures certainly make home ownership look extremely attractive but, be under no illusions, we are not in some sort of ‘golden age’ for property ownership. In the 1960’s, the average value of property was equal to 2.6 times the average annual salary, in 2021 the average value of property is equal to almost 9 times the average annual salary – indicating property prices have increased at a far faster pace than salaries have over the past 60 years. In fact, if the average annual wage from 1961 had increased at the same rate as property prices, the average annual salary in the UK would now be £96,000.

Cash is king!
Despite the fact that salaries haven’t risen at the same rate as property prices, the figures so far seem to point towards it still being affordable to buy a property right now, but only if you’ve got cash in the bank.

Remember when you could get a 100% mortgage? Scratch that… who remembers the crazy 125% loan-to-value (LTV) mortgage deals on offer during the nineties and noughties?? Thankfully, these lending practices no longer exist but this makes it harder for first-time buyers as it means you need to have money in order to borrow money.

Hey, hang on a minute, I hear you say…surely people want to borrow money because they don’t have money?!? Hmm, maybe 100-125% mortgages could return some day?

Up until recently, UK first-time buyers would need a deposit of at least 10% of the value of the property in order to secure a mortgage – meaning they would need to have more than £25k to put towards their property purchase – not including all the other costs associated with buying a property.

Now that’s a big chunk of change for anyone, but again, if you break down the math, the average person in the UK on the average wage with the average outgoings and expenses could theoretically bank that £25k within 2 years.

And in recent years it seems we have become a nation of savers as the current average mortgage LTV for first-time house purchases is 82% - meaning the average first-time buyer has accumulated an 18% deposit or almost £46,000.

Not everyone fits the mould
Up until now we’ve been using very simple rule-of-thumb maths, based on ‘country average’ statistics. In both the UK and US, these average statistics can fluctuate quite drastically between counties and states and given what we know about the wider economic challenges we’re facing, it is safe to say there are a lot of people whose circumstances fall far short of these averages creating insurmountable obstacles to home ownership.

In general, it is younger people who fall short of the statistical ‘average’ as they are not yet at a stage in their careers where they can reap the financial rewards.

This is perhaps also illustrated by the fact that the average first-time buyer in 2021 is aged 33 – a statistic that hasn’t significantly changed during the last decade – however, in 1961, the average age of a first-time buyer was just 23.

There are fewer young homeowners now than there were a decade ago with just 38% of 25-34 year olds owning homes today compared to 55% percent ten years ago. So, will the after-effects of a COVID recovering economy contribute to the continuing decline in homeownership among young people?

COVID has had an impact on every aspect of young peoples’ lives, and the affordability of housing is no exception. With house prices increasing and young people losing their jobs at a higher rate than any other age demographic, their ability to get on the property ladder is becoming more difficult, and here’s why:

Stamp Duty:
Back in 2017, the government announced that first-time buyers wouldn’t have to pay Stamp Duty Land Tax on any property under £500,000. At the time, this provided a huge boost to young first-time buyers and even caused a short-term dip in the average age of first-time buyers.

However, when COVID hit the UK, this relief was extended to everyone, not just first-time buyers. It was said to be something that would help everyone afford new housing, but young first-time buyers didn’t benefit as they already had this tax relief. Instead, it created a surge in house prices due to existing homeowners seeking to take advantage of this new tax benefit.

More young people are losing their jobs:
On top of the stamp duty no longer helping young people afford homes, they have also been losing their jobs at a higher rate than their older peers. More under-25s have lost their jobs during the pandemic than any other age demographic, and once the UK’s furlough scheme ends in September, unemployment figures among young people are likely to get a lot worse.

It goes without saying that it is simply impossible for any young person, who would be reliant upon a mortgage, to buy a property when they’re unemployed. COVID induced unemployment among younger people is bound to have a scarring effect on their income and employment prospects in the years to come, thus extending the doubt in their ability to buy a home for the foreseeable future.

Increasing debt:
On top of the devastating employment prospects faced by young people, they are also more likely to be in debt to their landlords. Rental properties are primarily inhabited by the younger generation and, as with the stamp duty relief, the mortgage holidays scheme has been of no use to them. Instead of introducing an equivalent rental holiday, the UK government imposed an eviction ban.

Presently, this eviction ban has been extended until March 2022, but in the meantime, renters are getting into more and more debt with their landlords.

A study published back in January found that 46 per cent of renters have lost income during the pandemic, and 15 per cent are now in rent arrears. The number of private renters behind on their rent has also doubled since February 2020. Being in debt to your landlord is hardly conducive to buying a property and will only make it more difficult for young people to get on the property ladder.

How long these difficulties will continue for beyond the pandemic remains to be seen. However, the prospect of increased unemployment once the furlough scheme ends, and the debt many will have to pay back to their landlords in next year, the existence of young first-time buyers definitely seems under threat.

But is a decline in young homeowners such a bad thing?

A survey conducted in the US earlier this year found that two thirds of young homeowners had buyer regrets.

By far the biggest regret was not being prepared for maintenance and other costs associated with homeownership. 26% of homeowners aged 25-31 said they thought that the costs of homeownership were too high.

They were also most likely to say that they didn’t get a good mortgage rate, or that they overpaid for property. For example, 12% said their rates were too high, and 13% said they agreed to a sale price that was more than it should have been.

Although mortgage rates are near historic lows, it’s still important to shop around for the best offer. Even a few percentage points difference in interest can mean a saving (or extra cost) of thousands of pounds over the life of a loan.

Millennials were also most likely to be unhappy with their new home’s physical characteristics. According to the survey, 15% of respondents from that generation said they disliked their new property’s location. About 30% thought that the home was not the right size.

It’s relatively safe to assume from the above survey results that the principal factor driving the dissatisfaction of young homeowners in the US is a lack of experience in the housing market and a lack of maturity in decision-making due to their age – maybe this should be a cautionary tale for wanabee young homeowners in the UK.

Employment Emergency! Where have all the workers gone?

As economies across the globe begin their journey on the long road to recovery, many businesses are asking the question: “where have all the workers gone?”

The disappearance of many low-skilled or unskilled staff from multiple industry sectors has been observed across many western economies during recent months, leaving employers struggling to fill vacant positions as they try to open back up for business.

So, what exactly is happening in the job market? Why are employers finding it impossible to fill these job vacancies?

Generally speaking, economists are laying the blame squarely at the door of the current COVID pandemic, framing it as a temporary blip or unforeseeable problem – and certainly not related to any macro-economic factors propagated by specific governments. But can it be that simple?

Jobs that were most affected by individual country lockdowns are arguably those within the hospitality and leisure sectors. Bar, restaurants, beauty salons, etc all received the harshest treatment by being forced to close for the longest – leaving millions of people without employment. So surely one would expect that as these businesses begin to reopen, workers who previously filled these positions would simply slip back into them? Well, that’s exactly what governments and employers alike were expecting, but boy did they get a shock!

Let’s take a quick look at the US where the service worker shortage is clearly evident – US employers are having difficulty recruiting at current wage levels, leading to vast closures of businesses, some of them after every worker quit on the same day, others having tried to keep things going after many didn’t return after shutdowns.

The US has a distinct, but not unique situation – it, like many other westernised nations, has an incredibly stingy social security framework. However, during the COVID crisis, unemployment payments have been considerably topped up – by $300 a week, leaving people who usually have no choice other than to work for even poverty wages with at least some alternative options.

Whilst Biden has made it clear he doesn’t intend to keep the boosted unemployment insurance forever, workers now have a degree of leverage – albeit temporary – to try to get better pay, or to use the time to retrain, upgrade their skills and find better jobs.

The UK’s story however is quite different to that of the rest of the world. Apart from having to deal with the most disruptive pandemic for a hundred years it’s also still adjusting to its new position in the world following the most publicised and hostile of divorce proceedings… Brexit!

The UK has also had a COVID boost to benefits, through universal credit, albeit on a far smaller scale to the US that couldn’t, on its own, come close to explaining the staff shortages that businesses are experiencing. The UK’s current worker shortage is far more broad reaching and is affecting all levels of employment across all corners of industry. Employers are finding it extremely difficult to fill vacant positions at all levels across manufacturing, construction, hospitality, logistics and distribution, health and social care, and agriculture.

Part of the answer is likely to lie in the furlough scheme, which paid people unable to work due to lockdown – or whose employers chose to furlough them – up to 80% of their usual income, while leaving them free to do other work.

The furlough scheme gave service workers in particular time to search for another job and the income to bridge the gap to a new role. While some people love service sector jobs and wouldn’t wish to switch elsewhere, the pandemic highlighted previously unforeseen vulnerabilities and insecurities of working within the sector that spurred many people to retrain or upgrade their skills to find work in other sectors.

Official figures show that, despite the lifting of all pandemic restrictions that previously limited people returning to work, about 1.5 million workers in the UK are still furloughed. At its peak almost 9 million jobs were furloughed during the first wave of the pandemic, with about 5 million in the wave in January this year.

Sounding the alarm over the risks to economic recovery from acute labour shortages, the Recruitment and Employment Confederation (REC) and the accountancy firm KPMG said the number of available workers plunged in June at the fastest rate since 1997.

Firms are reporting hiring challenges across several sectors of the economy, led by shortfalls in areas such as transport and logistics, hospitality, manufacturing, and construction.

As well as the trouble recruiting chefs, kitchen porters, cleaners and warehouse staff recorded in previous months, recent research indicates that issues for employers were spreading to typically higher-paying sectors such as finance, IT, accounting and engineering.

The rush to reopen after pandemic restrictions is leading to bottlenecks. UK employers are finding added complications as fewer EU workers travel to Britain because of COVID border controls and the government’s post-Brexit immigration rules.

An estimated 1.3 million non-UK workers have left the country during the pandemic. There are also far fewer foreign workers seeking employment in the UK, with overseas interest in UK jobs more than halving from before the pandemic; indicating that UK employers can no longer rely on overseas workers to plug employment gaps.

Some business leaders say easing post-Brexit immigration rules could help address shortages, but also called for further investment in skills and training from the government to increase the numbers of domestic candidates. Employment experts believe people are being put off from work in certain sectors that have developed reputations for low pay and poor conditions in recent years, and that concerns over continuing high rates of COVID are also having an impact.

Unemployment in the UK has fallen in recent months as firms scrambled to hire, dropping to 4.7%, or about 1.6 million people. The Bank of England forecasts that unemployment would rise to 5.5% after the furlough ends. However, this is significantly below expectations last year that COVID would drive up job losses at the fastest rate since the 1980s, leading to 12% unemployment.

In a sign of the growing pressure on companies, surveys from the British Chambers of Commerce showed 70% of businesses that had tried to hire staff in the three months to June had struggled to do so.

One of the most seriously affected sectors by the UK’s worker shortage is the haulage industry. It says it is struggling to find enough heavy goods vehicle (HGV) drivers to keep the economy moving. HGVs transport just about everything around the country – around 90-95% of all goods.

But thanks to a combination of COVID, Brexit and other factors, there aren't enough drivers to meet demand. Based on a survey of its members, the Road Haulage Association estimates there is now a shortage of more than 100,000 drivers in the UK.

There are a number of reasons why the shortages have become so severe - COVID is certainly a part of it. As travel became increasingly restricted last year, and large parts of the economy shut down, many European drivers went home. And haulage companies say very few have returned.

The pandemic has also created a large backlog in HGV driver tests, so it's been impossible to get enough new drivers up and running. The haulage industry said that there were 25,000 fewer candidates passing their test in 2020 than in 2019.

However, COVID wasn’t the only reason why many European drivers went back to their home countries or decided to work elsewhere. When the UK was part of the single market, they used to be able to come and go as they pleased, but the additional border bureaucracy after Brexit meant it was too much hassle for many of them to drive into and out of the UK. Many drivers are paid by the mile or kilometre rather than by the hour, so delays cost them money.

Haulage companies also want better conditions for drivers in general, and recognition that they are a vital part of the economy. They say the average age of HGV drivers in the UK is 55, and more needs to be done to attract younger workers. It is not a role that seems to encourage or appeal to enough younger potential employees entering the market and the issue has of course then been exacerbated by Brexit.

So, what is the government doing about shortages? For now, it has slightly relaxed the Drivers' Hours rules, which means drivers will be able to increase their daily driving limit from nine hours to 11 hours twice a week. But this has been criticised as compromising safety standards and the industry says it will do little to ease the problems it is facing.

Instead, haulage companies have been calling for a change in the rules to make it easier for drivers from abroad to get temporary visas to work here. They want foreign drivers to be added to what's known as the Shortage Occupations List, allowing them to qualify for a skilled worker visa.

But the government isn’t keen and argues that progress is already being made in testing and hiring, and it says a big push is also being made towards improving pay, working conditions and diversity.

With many drivers taking time off during the summer holiday season, though, there is real concern that the crunch may be about to come. There are now warnings from companies and hauliers that they can no longer guarantee all pick-ups and deliveries. Retailers are predicting crippling shortages on shop shelves due to the increasing inability to transport their goods. And just this week, KFC has warned customers that it is facing a shortage of some items as it becomes one of many businesses in the UK hit by supply issues.

Another industry notably affected by the UK’s worker shortage is the agriculture sector.
Many farmers breathed a huge sigh of relief when the UK and EU reached a last-gasp post-Brexit trade deal after nine tortuous months of negotiations. The long-awaited trade deal, which came into force when the Brexit transition period ended at the end of 2020, averted a no-deal Brexit – which most agreed would have been a catastrophic development for the agricultural sector.

Although tariffs are no longer a threat, Brexit has meant an end to free movement of labour, leaving food and farming sectors exposed to a huge shortage of seasonal and casual workers which have traditionally been filled by EU nationals.

EU workers who usually come to the UK to carry out jobs such as livestock slaughter and fruit, potato and vegetable picking and packing struggle to meet the criteria required under the Government’s new points-based system, which allows migrant workers to work in the UK.

Whilst the Government has relaxed the rules somewhat for vets, veterinary nurses, butchers, and agricultural engineers - and announced a seasonal workers pilot for 2021, with an increased quota of 30,000 - a shortfall of workers is still likely.

But there’s a double whammy for the farming sector – however successful it may (or may not) be in overcoming its worker shortage to get crops harvested, it now faces a second dilemma of how to get its produce onto supermarket shelves due to the worker shortage in the haulage industry!

A more unusual and unique phenomenon that has temporarily stalled the UK’s road to recovery is the emergence of the ‘Pingdemic’

What’s a ‘Pingdemic’ and why Is the UK having one?
July 19 was meant to mark the end of pandemic lockdown restrictions as progress continued in vaccinating people against COVID. But just as the country relaxed most restrictions, it was still dealing with a third wave of coronavirus infections as the highly contagious delta variant spread across the UK.

A record number of people who had come into contact with an infected person were being asked to self-isolate, most of them having been ‘pinged’ by the National Health Service’s contact-tracing app.

The ‘Pingdemic’, as it has been dubbed, has produced huge disruptions for businesses and critical services that threaten to undermine efforts to revive an economy still recovering from its deepest recession in 300 years.

Some of it is conducted the old-fashioned way, by workers who interview those who test positive for the coronavirus, ask them about recent contacts and then contact those people. But it’s predominantly done via a National Health Service ‘Covid-19 app’ that residents can download onto smartphones.

If a user tests positive for the coronavirus and agrees to it, the app uses Bluetooth technology to identify other users who in previous days came close enough to the infected person for long enough to be at risk.

The app then notifies those people and asks them to self-isolate for 10 days. Isolation is mandatory only in the case of the old-fashioned method, not with the app. In any case, it’s not required to download the app, and since the start of the ‘Pingdemic’, thousands of users have deleted it to avoid having to risk isolation.

There are reports that the app has been overly sensitive, for example identifying neighbours as contacts through house walls. Another complaint is that users were being asked to isolate even if they’re fully vaccinated; however, that rule is set to be lifted on 16th August.

Why did the number of people notified hit a peak?
As of July 20, an estimated 1.73 million people in a country of 67 million were isolating. Almost 690,000 people in England and Wales were told to isolate by the app in the week ended July 21, up 11% from 620,000 the week before.

The peak was driven in its early stages by a combination of rising infections and increased movement of people. The weekend before most restrictions were ended, the UK recorded the highest increase in infections anywhere in the world, with cases topping more than 50,000 per day.

The delta variant makes up approximately 99% of all new cases there. Infections were higher in the UK in early January, but lockdown rules were still in place in many parts of the country, so those who tested positive then likely would have come into contact with fewer people.

What are the consequences of so many people isolating?
British business is being significantly disrupted. Food and logistics companies have warned of critical shortages of workers, and ministers have allowed limited numbers to avoid the 10-day self-isolation to ensure services can keep running.

Retailers were reporting absences of as high as 20% in some areas. Carmakers on July 29 urged Prime Minister Boris Johnson to make their workers exempt from quarantine as labour shortages were hampering production. Automakers in the UK produced 69,097 cars in June, the second-worst total for the month since 1953, according to the Society of Motor Manufacturers and Traders.

Business lobby groups say it’s difficult to make sense of the rules particularly amid conflicting advice from different government departments, for instance about whether it’s essential for people to heed the app’s guidance to isolate, and how businesses might get exemptions. Businesses have pushed for tweaks to the app to account for people’s vaccination status and for staff to be able to return to work after testing negative for the virus.

What does the government say?
Boris Johnson - who confined himself to his country residence after being ‘pinged’ following close contact with Health Minister Sajid Javid, who tested positive - said that while self-isolating is difficult, it is still an important tool for fighting COVID.

He said the country must reopen ‘cautiously’. Key workers who were vaccinated could apply for exemptions, but the government was recommending the majority of workers still self-isolate if ‘pinged’ even though there was no legal obligation to do so.

In a move to ease the Pingdemic, the app was tweaked on 2nd August so that it identified users who had been in close contact with an infected person in the previous two days rather than five.

This recent adjustment to the contact tracing app has seen the number of people being ‘pinged’ reduce by more than half from 690,000 at the height of the Pingdemic in July to 317,000 in the first week of August – but that’s still a sizeable portion of the population unable to work - forcing companies to temporarily close or reduce their opening hours to cope with the reduction in staff.

No matter what your opinions or beliefs are in regard to the current pandemic or your attitude towards specific government’s macroeconomic policies, there can be no doubt that many western economies are facing a colossal labour crisis.

For many countries only time will tell if the economists are right and that this is indeed just a temporary worker shortage blip caused by COVID, or if it is in fact the start of something bigger.

Will we see an awakening within unskilled and low-skilled workers seeking better pay, better conditions, and more workers’ rights? Will this be the start of a modern social revolution?

Sustained labour shortages, for whatever reason, lead to wage increases in order to attract workers. Of course, higher wages for typically low-paid workers is an extremely positive outcome; however, if this in turn leads to rising inflation as companies raise their prices to accommodate higher wage bills then is anyone really benefiting here?

Will the ‘debt of the high street’ cause the ‘death of the high street’?

The Great British High Street has long been a quintessential part of any village, town, or city – the roots of which can be found in Britain’s era of rural self-sufficiency when, even as early as the mid 17th Century there were an estimated 50,000 independent shopkeepers across the country – a figure which increased to an astonishing 170,000 by the 19th Century; giving birth to the phrase a ‘nation of shopkeepers’.

Scoot forward a few hundred years to the Modern British High Street, and some would say the death knell has been sounding its demise for many years. In fact, early reports can be traced back to the mid 1980’s when the out-of-town shopping experience really began to take off – which was a slow burn considering the first out-of-town retail parks and shopping centres emerged in the mid 1960’s.

I often wonder if the ‘death of the high street’ is simply journalistic hype and that the ‘evolution of the high street’ would be a more accurate turn of phrase. If you think about it logically, many if not all the principal factors that affect today’s high street have been a perpetual seam in the fabric of the retail sector for hundreds of years.

Technology: nowadays, economists endlessly debate the effects of the internet and the explosion of e-commerce on the high street but go back 150 years and it was the technological advances of the industrial revolution and the emergence of mass production that threatened high street retailers – introducing cheaper processes for manufacturing perishable goods at scale - literally making it far harder for the butcher, the baker, and the candlestick maker to thrive.

Global Crises: The global downturn that emerged in 2008 and the many ‘boom and bust’ cycles experienced by major industrialised nations over the past 40 years are neither new or unique occurrences and again, we only need to go back 100 years to see how the stock market crash and the great depression affected the health of the retail sector. And global pandemics... anyone heard of the Spanish Flu that infected one third of the planet’s population and killed upwards of 20 million?

Money: For some it’s the root of all evil, and you either have it or you don’t, but in business it is a critical component for success – and if you don’t have it but you do need it, then you can borrow it! The principle of lending has been around for over 3000 years - in fact interest rates were invented in 1754 BC. Remarkably, payday loans are also not a new concept with the first recorded instance of a payday loan being found in Ancient Greece in 400 BC!

Back to more recent times and it seems barely a month goes by without us hearing of yet another major high street brand signalling its woes and cataloguing its painful path into administration and then ultimate death through liquidation – with no ‘hail Mary’ buyouts on the table or last-minute ‘government support packages’ in the offing - despite the various tantalising media reports of them being on the ‘brink of a deal’.

Debenhams, Cath Kidston, Toys ‘R’ Us, Poundworld, Maplin and TM Lewin are among the high-profile retail chains who have largely disappeared from our high streets in recent years. Many pin the blame on the current pandemic and the rapid rise of online shopping while others point to high business rates and rents.

But, if you take a deeper dive behind these failed brands, as did Channel 4’s Dispatches reporter Antony Barnett, you will discover they all have one thing in common – they were all once owned by private equity firms.

While these types of investors can sometimes be a lifeline for struggling businesses by offering a vital source of cash, some critics accuse them of focusing too much on short-term profits and loading companies with debt. This starves some brands of the crucial investment or funds required to react adequately to shocks such as coronavirus or rapidly changing retail trends.

Dispatches studied the accounts of private equity firms behind 10 well-known high street retailers that floundered in the past three years and found that:

● Their private equity owners made nearly £1bn in profits from their broader portfolio of investments while these failing brands went on to accumulate millions of pounds in crushing debt.

● Together, they owed almost £50million to HMRC at the point of collapse.

● When Cath Kidston went under, the Government’s Insolvency service, a taxpayer funded body, had to pay £1million to cover staff redundancy payments.

● There was also a human cost with tens of thousands of jobs being lost when they entered administration or liquidation.

It’s clear that the debt of these high street retail chains was a key factor in their disappearance, but what’s happening at the other end of the scale? As we know, the traditional high street was born from independent traders – so how are they faring?...

Statistics indicate there are currently 5.9million small businesses in the UK, with approximately 150,000 of these being identified as independent retailers – less than 3% of all small businesses – and if we compare how today’s independent retailers serve the current population with figures from the mid 19th Century, the number of independent retailers per capita today has shrunk by a whopping 80% compared to the 1850’s.

Whilst mathematically speaking this indicates a continuous decline in independent retailers over the past 170 years there are many other factors that influence their existence: population distribution, mobility, urban planning, and a vast array of economic and bureaucratic factors. Taking everything into consideration, the UK’s independent retailers have been winning their battle for survival… so far…

But now, according to a report commissioned by former Iceland chief executive Bill Grimsey, a ‘tsunami of closures’ is set to threaten the UK high street after independent retail debt soars five-fold to £2.4bn because of the current pandemic. Shops, hairdressers, and small bars are all battling to survive after lockdown closures.

The report found that 68,000 small independent retailers have seen their collective debt rise from £250million to £1.23billion since the start of the pandemic. Another 56,000 small independent hospitality firms have increased their debt from £190million to £840million, while borrowings at 20,000 hair and beauty businesses have rocketed from £50million to £300million.

The report stated small businesses were forced to take on debt they could not afford to survive, which is tantamount to irresponsible lending. Grimsey said: “We’ve already seen the carnage of the failure of the bigger companies. Now our independents are struggling to manage a mountain of debt and need help.”

Despite the difficulties faced by high street businesses, with trading hit by staff and customers getting ill or self-isolating after encountering someone with Covid, the first repayments on government-backed loans recently began just as furlough payments also began to reduce. The report estimates at least a third of small businesses are now facing default, with a knock-on effect for high streets and town centres around the country.

And with such catastrophic failures being forecast, one cannot ignore the human side to this - around 200,000 jobs were lost in the retail sector last year, with another 200,000 expected to go this year as 20,000 shops shut for good.

Having digested these devastating facts it’s hard to imagine there could be any winners within the retail sector, but fear not, I bring tidings of joy for local convenience stores!

2020 saw spending at local off-licences, greengrocers and convenience stores rise 40%, according to research. This same research reported that 46% of consumers are more motivated to support local businesses due to the Covid crisis and 65% of people in the UK say they have a newfound appreciation of their local shops. Factors also contributing to this were convenience, less queuing than at bigger supermarkets and shorter travel time.

I began this article pondering the legitimacy of the phrase ‘death of the high street’ - but will the current ‘debt of the high street’ produce the last nail in the coffin for our beloved high street?

Despite their struggles, independent retailers remain the lifeblood of UK high streets, offering specialist products and services, knowledge, and passion for their community. Shopping at an independent retailer supports local traders and in turn, the local economy, enabling local businesses to prosper and grow.

Not only do people want their high streets to be places where they can go to find a uniqueness that can only be offered by independent retailers, they want to shop in a way that supports local communities.

For every £1 spent with a local, independent business, between 50p-70p circulates back into that local economy. Shopping online or in corporate, out of town retailers only generates around 5p back into the local community.

In the past, the government has moved heaven and earth to rescue some industries, but independent retailers are being driven towards failure. So, what can the government do now to stop the death of the high street by tackling the debt of the high street?...

Many of the UK’s large retailers received unprecedented levels of government support during the pandemic, and with many of these retailers being classified as ‘essential’ they were not hugely impacted by lockdown. This led to some of these retailers including Tesco, Sainsbury’s, and B&M handing back to the government £2bn in business rates relief funds.

This figure alone could be used by the government to write-off 80% of independent retailers’ current loan debt – a massively significant lifeline for the sector. They could further boost independent retailers’ prospects by giving those businesses that had previously been classed as ‘non-essential’ a business-rates holiday and allow them to defer both VAT and employment tax payments to survive.

The solutions are simple and, whilst they may be costly in the short term to the government’s coffers, the long-term benefits cannot be ignored.

The government needs to act now – debt breeds debt and whilst we are also seeing numerous reports of how the high street is ‘bouncing back’, consumer spending is not set to reach 2019 levels until the end of 2022.

Consumer spending alone will not enable independent retailers to dig themselves out of the cavernous debt hole they are currently sitting in. Without government support to remove the burden of debt many independent retailers will continue to struggle and fail.

‘Death of the high street’ or ‘evolution of the high street’, no matter what you call it, if we don’t tackle the ‘debt of the high street’ then the debate will turn from “what can we do” to “what should we have done” - at which time it will simply be too late for this Great British institution.