The furlough scheme must be reformed to avoid mass unemployment | Anneliese Dodds | Opinion

The furlough scheme must be reformed to avoid mass unemployment | Anneliese Dodds | Opinion


The job retention or furlough scheme, created by the government, business representatives and trade unions working together, has had no parallel in UK history. It has kept six million people in work, and backfilled seven and a half million jobs. Without it, one in three businesses say they would have had to lay off staff; and many workers would have felt compelled to try to continue to work, despite public health guidance requiring them not to.

No one imagines that the scheme can continue in its present form indefinitely. While a worthwhile investment to support the economy and ensure millions aren’t without a wage, it is a very costly scheme. It is also inflexible, requiring workers to completely remove themselves from work. And the “missing” 20% of earnings for those who have been furloughed has pushed many below even the minimum wage.

So the question is not whether the furlough scheme should change, but what that change should look like – especially in a context where unemployment is heading up to at least 9%.

The chancellor has been slow to take decisions in this area. Since the beginning of the scheme, we have urged him to allow part-time working – but now learn that this will not be introduced until the start of August. This sets the UK scheme apart from those in continental Europe, which allow part-time working.

Briefings to the press suggest that from the beginning of August, those covered by the scheme will need to have their employer contribute 40% of their previous wage, or support will be discontinued. If these rumours are correct, this again sets the UK’s scheme apart from other countries, where support has often been linked to the lifting of the lockdown.

The practical impact of a uniform employer contribution, in the absence of other forms of support for different sectors, is clear. By the time we get to 1 August, social distancing requirements may still be in place. While it is possible that some restaurants, for example, may be opening by then, they may well need to operate substantially under capacity in order to enforce social distancing. This could mean that the employer could not afford a 40% contribution, and would be forced to lay off staff. And as another example, many manufacturers may still have heavily disrupted supply chains, either in the UK or beyond, by then – again, preventing them from generating revenue sufficient to pay a 40% contribution. The implications are also clear for those staff who are furloughed because they are shielding for medical reasons, whose employers may no longer wish to support them.

Adopting an identikit approach to all workers and all businesses from August neglects these challenges. Above all, it risks creating a second, massive wave of unemployment, at a time when the jobs market will be unable to absorb it. This is particularly the case given that jobs in hospitality, catering and tourism are often one of the first routes out of unemployment, especially for the young.

A more differentiated approach would, admittedly, pose challenges for the government. Hard choices would need to be made, including how to deal with difficult boundary issues between sectors, timing problems in relation to changes in social distancing, and more conditionality on the scheme to ensure it genuinely support​s employment.

However, these political and administrative difficulties are just that – political and administrative. A far less tractable kind of difficulty would be how to aid those who might become long-term unemployed. ​

Studies following the previous recession in the US indicated how those who became unemployed following the global financial crisis saw their future earnings permanently hampered as a result. The government has perhaps become blasé about the impact of unemployment in the UK, given its comparatively low levels recently. However, it’s arguable that a decade of sluggish growth in wages, coupled with above-average inflation, helped insulate us from unemployment – conditions that are unlikely to persist in this form into the future.

Failing to engage with redesigning the furlough scheme, and opting instead for administratively “easy” options, could leave our country with much higher unemployment, with all the human and economic costs that implies. These hard times require our government to be willing to face up to hard choices, and to show the courage to govern in the country’s long-term interest.

Anneliese Dodds is the shadow chancellor of the exchequer


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