Chancellor must swallow his pride and extend vital furlough lifeline
The abrupt withdrawal of support next month would fail to recognise Covid’s economic realities
The House of Lords has some fine minds, and nowhere more so than on its economic affairs committee. Lord Skidelsky wrote the definitive three-volume work on John Maynard Keynes. Lord Burns, a former chief economic adviser at the Treasury, was once tipped as a Bank of England governor. Then there’s Lord Stern, an authority on climate change and a former chief economist at the World Bank.
With intellect like that, today’s committee session with the CBI and TUC on the question of “will the Covid crisis lead to mass unemployment?” should be brief. You don’t need a PhD to come up with the right answer, which is: of course it will, unless the Government reverses course on an avoidable but entirely predictable policy error, and extends its furlough scheme beyond the end of next month. If it does end on Hallowe’en, it will be a horror movie for the jobs market.
In a year in which societal and economic norms have been torn asunder, the taxpayer’s continued presence in the pay packets of millions of workers is an admitted aberration.
But that doesn’t mean a hard stop is the right move. The intense desire for “normality” feeds through every politician’s call, for example, for us to hop on trains and head back to the old world. Tearing off the furlough plaster is another manifestation of the trend, even though home working is here for good and the virus is worryingly resistant to political efforts to “move on”. But ending the job retention scheme as the economy heads into a bleak winter solves nothing and will compound the long-term economic scarring left by Covid-19.
Some numbers for the learned peers to consider: there are 32.9m workers in the UK and, according to the Office for National Statistics’ latest survey, 11pc of them were still furloughed as of the end of August. That’s 3.6m workers currently facing a very uncertain future after October. In hospitality and food, the furlough share is much higher at around 25pc; in a UK cultural and arts scene hammered by social distancing, more than half are still in the job retention scheme. Hence the outrage of MPs such as Julian Knight, the chairman of the culture, media and sport select committee, who warns the country risks becoming a laughing stock if politicians let it go to the wall.
Those suggesting that the continued presence of furlough will simply slow the reallocation of resources needed in an efficient post-Covid recovery seem to assume that nobody will ever want to go to the theatre again. Throwing these and other workers into the biggest jobs bonfire since the early Nineties is folly, particularly as employers show no appetite to take them on. The latest jobs figures show just 370,000 vacancies. As Bank of England rate-setter Michael Saunders pointed out in a speech the Chancellor really should read, faster indicators show vacancies are still down by 55pc year on year, and there is a “marked weakness” in hiring intentions.
The economic risks are still heavily skewed to the downside and household savings have shot up.
Families are understandably more worried about unemployment and savings have soared: this “paradox of thrift” could be as big a handbrake on the recovery as social distancing.
To those arguing a continued furlough is unaffordable, here’s another number to consider: 2.8pc. That is the weighted 12-month average of the UK’s debt interest payments as a share of its revenues in July, despite the vast expansion of gilt issuance since March. The percentage is less than half the level which would have triggered alarm under former chancellor Sajid Javid’s fiscal rules.
Helped by lower interest rates and falling retail price index inflation, we paid £2.4bn of debt interest in July; in fiscal terms, that’s chump change.
The UK is paying just 0.25pc to borrow money for 10 years, even after Threadneedle Street slowed the pace of its asset purchases. So why scrap it?
Insiders who have dealt with the Treasury say the department dislikes furlough as a “blunt tool”, although that surely doesn’t stand as a reason to cosh the jobs market with its abrupt withdrawal. The National Institute of Economic and Social Research has suggested an extension until June next year at a cost of £10bn, eventually paying for itself by staving off longterm unemployment. Cyrille Lenoel, its economist, suggests a tapering of the share of wages paid by the state by 10 percentage points a month to zero next April. Despite the official line, the more likely course is a smaller-scale targeted move to help specific sectors most harmed by Covid, as Knight and a host of opposition MPs have asked for, as well as direct support to the business victims which inevitably find themselves in local lockdowns this year. Business groups I’ve spoken to suggest this could be through the major expansion of the £11bn in local authority grants handed out so far.
Messaging is the key, however, for ministers whose image has been scarred by a summer of U-turns; hence you can guarantee that whatever the successor to the furlough scheme is, it won’t be called a furlough, or anything like it. It may be linked to training, for example. But the “conversations are going on every day”, one source says.
The Chancellor has said he doesn’t want to give “false hope” to those on furlough by extending it. But refusing to act now is a conscious choice, which says that he and his government are content with mass unemployment and the misery it entails. It is also disingenuous from a senior politician whose decision to stop the economy due to a pandemic has had far deeper consequences for some than others. He should be throwing them another line, not casting them off into the deep.
Rishi Sunak, the Chancellor, has so far refused to give ‘false hope’ to furloughed staff