If Rishi Sunak turned the furlough scheme into a plan for work sharing, he could save two million jobs

Rishi Sunak is about to pull the emergency brake just as the UK economy is just starting to pick up. Winding down the furlough scheme in October, despite clear signs that businesses and workers will still need it, would be a historic mistake. Reforming and extending the scheme now could prevent jobs losses and boost the economy in this time of need. It should be a no brainer.

The cliff edge created by the early end of the scheme will create a huge, damaging surge in unemployment. IPPR analysis found that as many as two million viable jobs could be lost in October because many sectors still have not fully recovered or reopened. A third of businesses say that their sales are still more than 20 per cent below what they were before the pandemic. New job listings are also down by more than half.

These shortfalls are big, but are expected to largely close in the new year, making it possible for many more people to return to their jobs.

However, right now many businesses are dealing with lower demand for their products and services by laying off workers. High-street retailers may have already shed 100,000 jobs, with Marks & Spencer laying off 7,000 this week alone. Overall, more than 700,000 jobs have been lost since the crisis began.

Those who argue that the furlough scheme must end because it is too expensive are wrong. It is increasingly clear that ending job support this early would actually cost the country more overall than it would save.

An unemployment explosion of the scale predicted will cause long term damage to the UK economy. Unemployment also tends to be sticky – once it has drifted up, it takes many years for it to go down again. So if there is any way to keep people in active work, Sunak should grasp it.

The solution is: share jobs to save jobs. By turning the furlough scheme into a work-sharing scheme, about two million layoffs could be prevented. Rather than keeping people on furlough and at home, it would bring people back into active work, but just on shorter hours. For instance, if a firm is faced with only half its usual business, it could let all its workers work half the time with the help of government support. That is much better than the alternative of firing half of its workers.

This innovative new furlough scheme could be achieved by subsidising part-time work at a rate of 10 per cent and maintaining incomes for hours not worked the same way as the current scheme. All this would be temporary, with a return to full-time work in the new year when the economy recovers.

Many other countries have already moved to extend their furlough schemes. France is keeping its policy until the end of next year, with conditions. Germany too is about to extend its scheme by another year and linking it to upskilling of workers. Both countries have been less hard hit economically by the pandemic than the UK and yet are providing more certainty to businesses and workers than the UK.

Some have raised concerns that the government may unduly support so-called "zombie jobs", but this could be addressed by targeting the scheme only at those firms hit hard by the pandemic, including by a potential second wave of the virus.

Of course, a job-sharing scheme alone is not a silver bullet. New jobs will also need to be created for those who are unemployed. IPPR has called for £30bn additional annual investment to boost clean and green industries to generate the jobs of the future. The universal credit system will also need better funding to help those out of work from falling into destitution.

The decision Sunak makes this summer on the furlough scheme may shape the extent of unemployment in the UK for a decade, as well as his legacy as Chancellor. As the British economy carefully picks up speed, this is no time to pull the emergency brake. Extending the flexible furlough, encouraging part time work, makes economic sense. It should be a no brainer.

Carsten Jung is a Senior Economist at the Institute for Public Policy Research (IPPR)