What happens to jobs after furlough?

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The UK economy looks like it’s heading into freefall. Society may soon follow and October could bring our Autumn of Discontent. Prime Minister Boris Johnson has announced further easing of lockdown, with pubs, restaurants, hotels and hairdressers able to reopen from 4th July, so long as social distancing of one meter is maintained and with other measures also in force.

Yet even with a reduction to one meter, the leisure and hospitality sector will likely struggle, while consumer confidence is likely to remain low for some time yet. Moreover, indoor gyms, swimming pools, spas and bowling alleys will remain closed.

Here at Unlocked, we are creating a community from across the country to debate and find solutions for the challenges the UK faces as it emerges from lockdown. With no party-political affiliation, Un-locked seeks to establish a wealth of insight from stakeholders across all sectors, based upon the conviction that government alone cannot provide solutions to every problem, nor can it offer every innovation.

Since lockdown began, unemployment has nearly doubled from 1.5 million to 2.8 million, close to 10% of the workforce. This is the highest level since 1984. The Treasury’s flagship furlough scheme is supporting over a quarter of the workforce, with the state paying up to 80% of monthly salaries, capped at £2,500. From August, the government will begin reducing these contributions, with employers paying 10% of salaries in September, and 20% in October, when the scheme ends, as well as pensions and national insurance contributions.

As the furlough scheme is wound down, reports suggest up to a quarter of a million firms could be forced to lay off workers. The Government is suggesting that the time could be spent reskilling and upskilling laid-off workers. But for what? Retraining workers in the 1980’s was a reflection of the economic shift from industry to service sector employment. What is the current medium- or long-term industrial strategy guiding training needs? More immediately – and assuming the economy and consumer confidence remain in the doldrums – the end of furlough could lead to a tsunami of redundancies.

Unemployment could rise sharply and exceed 9 million people. That’s one third of the workforce. As Ben Habib sets out for us elsewhere in Unlocked, this would represent both an economic and a human tragedy. Without a mitigating strategy, not only might we see the British economy topple over the cliff edge, but unemployment will keep rising through October and beyond. The poorest in society will be hit the hardest – the very people the furlough scheme was designed to protect.  Small businesses will take a battering, even though they are a vital source needed to power the Great British Comeback.

Unlocked proposes a year-long Reverse Furlough Scheme (RFS). Such a scheme would provide financial incentives for businesses that bring previously furloughed staff back to work, while penalising firms which make previously furloughed staff redundant. The vast majority of businesses might avoid having to cut staff, with a helping hand from the Treasury

The cost of the RFS need only be a fraction of the cost of the furlough scheme itself. Government funding of around 20% of the cost of each returning employee could help most employees keep their jobs. Such a support scheme would need to remain in place for around a year – or until businesses are back on their feet and the economy is in much better shape.

We cannot leave it to market forces alone. Money spent wisely now on reversing the furlough process would yield dividends for the economy through higher employment, lower welfare expenditure, higher tax revenue, higher retail spending and so on. This needs to feed into a longer-term government strategy.

The government may be willing to throw money at the problem – but the public has no appetite for more white elephant projects or a repeat of the PFI fiasco.  The Reverse Furlough Scheme could be the right policy at the right time, with a view to the future. Market forces alone cannot solve the immediate problem. Slashing spending and hiking taxes could well make a bad decision worse. Meanwhile, spending government money without an economic strategy to underpin it, will likely create more debt with virtually nothing to show for it.

Government has to act now. The alternative is frankly unthinkable.

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