Norman Lamont claimed the Government’s furlough scheme has lulled workers into a “false sense of security” despite the horrors ahead.
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Serving as Chancellor from 1990-1993, Lord Lamont has now claimed entire parts of the economy “will disappear” after the lockdown.
The 77 year-old said: “I think part of the consequence of the furloughing scheme, for example, is to lull people into a false sense of security.
“I don’t think they really see what is around the corner. And I think what is around the corner is pretty horrible. The furlough scheme is very expensive, and I don’t think it can go on for very long.
“Some sectors will bounce back but not necessarily back to where they were before. But some sectors will disappear.
“If you think of part of the services sector, hospitality, tourism, restaurants, hotels, airline travel – I think they’re going to be very badly hit for a long time.”
So far 6.3 million people have been furloughed because of the economic shutdown caused by coronavirus – at a staggering cost of £8billion.
Furloughed workers currently have 80 per cent of their wage subsidised up to £2,500 a month.
The scheme will continue until the end of June.
Earlier this month, the Office for Budget Responsibility – the government’s independent economics forecaster – said that Britain’s economy could shrink by 35 per cent this spring because of the pandemic, itself a historic plunge.
But bosses at Barclays forecast an even bigger 52 per cent hit to second quarter GDP from the economic standstill.
Lord Lamont urged the Government to spend their way out the crisis to stimulate an economic recovery, and ignore the growing debt.
He said: “I think as we recover, the government should be very careful to nurture that gradual improvement in the situation and shouldn’t do anything in terms of reducing the debt that would hold back the recovery.
“It reminds me of a situation I encountered in 1993. The recovery was just beginning and I announced a series of tax increases in order to reduce the deficit in borrowing, but I said they wouldn’t be implemented for one, two or three years to let the recovery take place on a more elongated timetable.”
His comments come just days after Rishi Sunak admitted the £8 billion scheme is not a “sustainable situation”.
Mr Sunak is looking at targeting the furlough scheme at certain age groups and the worst-hit sectors as part of plans to gradually wean “addicted” workers off the state-subsidised wage support.
One of the options being considered by the Chancellor is cutting the wage subsidy down to 60 per cent – as much as £625 a month – to encourage people to look for new jobs.
The claims were backed by former director general of the British Chambers of Commerce, who warned the spending risks “no juice being left in the tank to fuel” a post-lockdown stimulus package.
It comes as the Resolution Foundation claimed that the crisis could see youth unemployment surge by 600,000.
With 400,000 people in the age group already out of work before it hit, the new tidal wave would mean more than a quarter – 27 per cent – unable to get a job.
Youth unemployment hasn’t topped seven figures since the recession of the early 1990s.
They are now urging Ministers to bring in more support for students as well as employment guarantees.
