Fears for jobs as furlough scheme scaled back

The UK takes its latest step on Sunday towards weaning itself off massive state support for wages, as chancellor Rishi Sunak’s furlough scheme is scaled back.

Some 1.9 million workers are still on furlough, and there are fears that the cut from 70 to 60 per cent in the state’s contribution to their pay will force thousands out of their jobs.

A survey by the British Chambers of Commerce (BCC) found that nearly one in five (18 per cent) of businesses with employees on furlough plan to make some or all of them redundant as the Treasury payments become less generous.

With a monthly cap of £2,500 on salaries supported by furlough, employers will be expected to pay up to £625 a month for each eligible employee, even though many will be performing no work. This compares with a maximum £312.50 during July, when the furlough rate was 70 per cent, and nothing at all prior to that.

The BCC warns that many of those forced out of jobs will be older workers, who are disproportionately represented among the 1.9 million still claiming furlough, and has called for retraining to help them return to the labour market.

And the Salvation Army has warned that the gradual withdrawal of the scheme could force more people into homelessness, as the loss of jobs and income results in repossessions.

The impact will be all the harsher because the 30 September date for the end of furlough is the same day the Treasury plans to withdraw a £20-a-week uplift to Universal Credit introduced as a temporary measure at the start of the pandemic, and worth £1,040 a year to millions of disadvantaged families, including many low-paid workers.

The Coronavirus Job Protection Scheme (CJPS) was introduced in March 2020 by Mr Sunak as a means of ensuring that workers retained their connection with employers and jobs, rather than being laid off during the enforced closure of workplaces for public health reasons. It was initially intended to last only until June 2020, but has been extended five times as the pandemic ebbed and surged.

At its height in May 2020, some 8.9 million workers were having 80 per cent of their salaries paid by the state. Over the course of the scheme to the end of June 2021, at least 11.6 million jobs have been placed on furlough at some point at a total cost to the taxpayer of £65.9bn. Changes introduced in July 2020 allowed furloughed employees to do some work, though many are still unable to do their jobs and remain on the scheme full-time.

Numbers using the scheme dipped last summer, but then rose to a peak of 5.1 million in January before declining again with the reopening of society in the past three months.

Some 1.9 million people were receiving furlough at the end of June, down 590,000 from the previous month.

But more than half (58 per cent) of employees in passenger air transport and 49 per cent in travel agencies and tour operators were still furloughed. Other sector still heavily reliant on the scheme include photography (39 per cent), creative arts and entertainment (34 per cent) and clothes manufacturing (30 per cent).

Younger workers have been leaving furlough most quickly, with the share of under-18 staff furloughed falling from 13 per cent in May to 7 per cent in June, and from 10 to 6 per cent for those aged 18-24. The Resolution Foundation thinktank has warned of older workers being “parked” on furlough, as one in 10 employees aged 65 and over remain on the scheme.

London is the furlough capital of Britain, with nine of the 10 local authorities with the highest participation situated in the capital – the one exception being Crawley in Sussex, where a high proportion of employment is linked to Gatwick Airport.

Furlough is widely credited with limiting the impact of Covid on employment levels. At the outset of the pandemic in April, an Office for Budget Responsibility forecast warned unemployment could swiftly reach 10 per cent if no action was taken, but joblessness in fact peaked at 5.1 per cent in 2020.

In the US, where no equivalent scheme was implemented, unemployment rates rose from 3.6 per cent in January 2020 to a record high of 14.7 per cent in April 2020.

Euro area countries implemented a range of employment support programmes, which saw joblessness rise by just 1.2 points between February and October 2020 to 8.4 per cent, with a peak of 8.7 per cent in July.

The experience of seeing the state directly paying the wages of more than 30 per cent of the national workforce has given new momentum to calls for permanent job support schemes.

The Green Party has called for the creation of a universal basic income as a legacy of furlough, while the Unite union is leading calls for the CJPS to be converted into a short-time work programme of the kind seen in Germany, under which employers are able to reduce their employees’ working hours instead of laying them off, with the state paying an income “replacement rate” of 60 per cent for hours not worked.

The Kurzarbeit scheme, introduced in 1910 and fully established by 1924, in response to crippling inter-war economic turmoil, is a social insurance system designed to prevent temporary unemployment surges caused by recessions, crises in particular sectors or market fluctuations.

It is credited with making Germany the only G7 country not to experience a fall in employment in 2009 following the financial crash, despite a six-point fall in GDP.

With his thoughts turning to paying off the estimated £372bn cost of Covid, however, the chancellor is thought to be focusing more on bringing the highly expensive programme to an end than on finding ways to keep paying workers’ wages.