As UK furlough ends, Sunak may have to look abroad for inspiration
The Chancellor faces a difficult task in replacing the Job Retention Scheme, writes Tim Wallace
Rishi Sunak has a problem. His furlough scheme, which successfully protected millions of jobs through the first lockdown, closes at the end of October.
It has been winding down since August, encouraging people to go back to work and limiting the bill to the Treasury, which currently stands at £40bn. But a resurgence in the virus means new restrictions have been introduced, so the crisis is not over yet.
The problem is urgent. About a tenth of business employees were still on furlough at the start of this month, according to ONS surveys, amounting to around 2.2m people. By the end of next month their employers will either have to take them fully back on to the payroll, or make them redundant.
If coronavirus measures continued to lift, letting more staff in industries such as hospitality and leisure get back to work, then this might, just about, have been enough time to save those jobs. As it is, new restrictions will limit demand for workers in pubs and restaurants. Fresh instructions to work from home will hit businesses in towns and city centres, or those catering to workers on office parks.
Pressure is mounting on the Chancellor to extend the Job Retention Scheme (JRS) or replace it with a new system of support when he announces how he will help workers and businesses today. So what are his options? Sunak could look abroad for inspiration. One option is the US model. This involved no furlough at all, but instead beefed up unemployment benefits. Joblessness spiked sharply, then fell back rapidly as the economy reopened. But the damage is still significant, with the unemployment rate at 8.4pc in August, down from almost 15pc in April but more than double the 3.5pc low in February.
It is a model that plays to the relatively smaller state, flexible traditions of the world’s largest
economy, promoting the possibility of workers moving to new jobs instead of being given a potentially false hope that their old position will still exist.
Britain also has a relatively flexible market, and the bigger the changes facing the economy, the more valuable it could be. “There is a real risk that many jobs are not viable in their current form, and the furlough scheme may lock these people into jobs that don’t exist, delaying the recovery,” says Matthew Oxenford at The Economist
Intelligence Unit. On the other hand, it could make the JRS look wasteful if the Treasury has spent heavily to retain jobs and now simply scraps the scheme. “However, the Treasury is likely to need to provide additional financial support to households,” says Oxenford. “This could take the form of massively expanded unemployment insurance, a part-time wage subsidy scheme, or other creative solution.”
Other nations with schemes more like Britain’s have extended their programmes. Australia, for instance, has a similar though less generous JobKeeper programme, which has been extended to March 2021.
Germany has a more established “short time work” system under which workers whose hours have to be cut receive top-ups from the Government. The idea is that laying off skilled workers in a downturn risks being unable to re-hire them in the recovery, wasting time, effort and skills. It also makes investment in heavy machinery less risky.
On the other hand, it might not suit the UK’s economic model, or restriction-hit services industries. Tony Wilson, at the Institute for Employment Studies, notes that the German cash flows straight to workers, so it only benefits bosses who cannot cut employees’ hours. By contrast employers in the UK’s leisure and entertainments industries can simply keep workers on shorter days.
“The alternative is a straight subsidy, to pay a percentage of wage costs of employees,” he says. “That way, you can encourage employers to keep people at work, so you don’t end up pulling the stool away at the same time as we are shutting down parts of the economy.”