This is crunch time for the fu­ture of fur­lough

As the Gov­ern­ment puts more onus for fur­loughed work­ers on em­ploy­ers, they must look to the longer term, writes Tim Wal­lace

The Daily Telegraph - Business - - Business -

Crunch time is here. Rishi Su­nak has spent more than £33bn on the fur­lough scheme that has paid more than 9 mil­lion work­ers to stay at home for at least a spell since the pan­demic be­gan. But from this month, em­ploy­ers must chip in with na­tional in­sur­ance and pen­sion con­tri­bu­tions.

Next month the Gov­ern­ment will pay 70pc of wages in­stead of 80pc, with em­ploy­ers re­quired to add in at least 10pc. That falls to 60pc in Oc­to­ber be­fore the scheme ends at the end of the month. The Chan­cel­lor is keen to wind it down, and so is the Gover­nor of the Bank of Eng­land. But em­ploy­ers bear more of the cost of pay­ing staff to not work, and have to de­cide whether to keep them at all. Should the scheme be ex­tended to de­lay or soften those de­ci­sions?

The pur­pose of the job re­ten­tion scheme was to en­sure busi­nesses that tem­po­rar­ily closed their doors did not have to sack all their staff. Af­ter the pan­demic passed, they could restart oper­a­tions without the slow and ex­pen­sive process of re­hir­ing. It would ease the pain for work­ers, too, keep­ing them earn­ing while do­ing the right thing to stop the spread of the virus.

This has clearly worked for mil­lions. Most fur­loughed work­ers have been taken back on, mean­ing the scheme helped bridge the gap be­tween lock­down and reopen­ing. Un­em­ploy­ment has not spiked as might have been ex­pected dur­ing such a ma­jor re­ces­sion.

How­ever, hours worked have plunged, re­dun­dan­cies are ris­ing, and a sig­nif­i­cant num­ber are still on the scheme. With em­ploy­ers now start­ing to bear some costs, this could be the mo­ment when lay­offs surge.

There is a bonus to en­cour­age bosses to take staff back. The hos­pi­tal­ity in­dus­try has a boost from the “eat out to help out” dis­counts. But it is a dan­ger­ous mo­ment.

France has adopted a Ger­man-style part-time un­em­ploy­ment sys­tem that could last for an­other year or even two, while Italy has length­ened its fur­lough. Should the UK fol­low suit?

The ques­tion turns on whether those still fur­loughed will ul­ti­mately go back to their jobs. If the world even­tu­ally re­turns to “nor­mal”, their jobs will come back, and an ex­ten­sion makes sense. But if there has been a se­ri­ous change in the UK’s eco­nomic struc­ture, they will never re­turn, and the fur­lough scheme risks de­lay­ing those work­ers’ moves into new jobs.

Garry Young, of the Na­tional In­sti­tute of Eco­nomic and So­cial Re­search, warns that the “pre­ma­ture” end of the scheme could push un­em­ploy­ment to above 10pc. He would pre­fer it to be ex­tended to mid-2021. “When the scheme ends, some of those peo­ple will lose their jobs be­cause some firms are not in po­si­tion to take them back when they have to main­tain so­cial dis­tanc­ing. Yet those would be valu­able jobs in a world where you could op­er­ate as nor­mal,” he says.

‘Scar­ring’ is a worry: “If peo­ple lose their jobs in the cur­rent sit­u­a­tion, they are not quickly go­ing to find new ones. They be­come de­tached from the labour mar­ket, be­come long-term un­em­ployed, and we’ve known from pre­vi­ous re­ces­sions that the more long-term un­em­ployed there are, the worse the out­look is.”

That raises the spec­tre of an Eight­ies-style crunch. Ex­tend­ing fur­lough would cost an es­ti­mated £10bn or more. How­ever, the risk of ex­ten­sion is that jobs that are sim­ply never go­ing to come back are kept on ice at tax­pay­ers’ ex­pense, wast­ing money and also the time of those kept in sus­pense.

In­stead it would be bet­ter for staff to start look­ing for more sus­tain­able and pro­duc­tive jobs, says Kal­lum Pick­er­ing, econ­o­mist at Beren­berg Bank.

“We should be look­ing to get work­ers out of un­pro­duc­tive in­dus­tries into pro­duc­tive in­dus­tries and you don’t do that by ar­ti­fi­cially length­en­ing the time work­ers are em­ployed in in­dus­tries which will no longer be re­quired, bet­ter that you re­train them and spend money on the ad­min­is­tra­tion re­quired to re­train and re­al­lo­cate those work­ers,” he says. “What we need to do is al­low peo­ple to ex­hibit some free will and free­dom to spend on what­ever their hearts de­sire and then once we recog­nise what are fresh and new grow­ing in­dus­tries, we fig­ure out how to re­train those work­ers that were once work­ing in the travel in­dus­try and get them into the in­dus­tries of the fu­ture.”

More ur­gent are the needs of those busi­nesses that have still not been al­lowed to re­open. Bowl­ing al­leys, ice rinks and wed­ding venues are among those blocked from op­er­at­ing, mean­ing they have to start in­cur­ring costs of em­ploy­ing fur­loughed staff without the op­tion of bring­ing them back to start work­ing and gen­er­at­ing rev­enue.

They have not had a chance to test out the state of con­sumer de­mand so far, and risk be­ing frozen into obliv­ion by the sus­tained lock­down with no fair shot at sur­vival.

Just as com­pa­nies hit with lo­cal lock­downs have been al­lowed to reac­cess the scheme, so an ex­ten­sion for those never al­lowed out of lock­down could at least give them a fight­ing chance.

But for those busi­nesses that are open and trad­ing, this is their one op­por­tu­nity to work out if they have a fu­ture.

A time of re­lax­ation and re­assess­ment of work may be ap­proach­ing for many as Rishi Su­nak, right, pre­pares to wind down the job re­ten­tion scheme

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