For Rishi Sunak, ending furlough scheme will be harder than starting it
Judged by its original aim, the government’s furlough scheme has been a massive success. Almost a million businesses have taken advantage of the Treasury’s offer to pay 80% of the wages of laid-off workers up to a maximum of £2,500 a month.
Rishi Sunak has said a total of 7.5m jobs are covered by his job retention scheme, and even allowing for the fact that some people have more than one job, it is probably the case that more than a quarter of the UK’s 27 million employees are being covered.
The Bank of England projected last week that unemployment would rise to 9% this year because some firms would find it impossible to carry on even with Covid-19 wage subsidies. Without question, though, the jobless count would be a lot higher without the government support.
But as the chancellor made clear on Tuesday, paying 80% of the wages of more than a quarter of employees is expensive. “We have stretched and strained to be as generous as possible to businesses and workers,” Sunak told MPs. “It is the right thing to do – the cost of not acting would have been far higher – but it is not something that can continue indefinitely into the future.”
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Yet ending the scheme is proving a lot more difficult than launching it in the first place. When Sunak announced his plan shortly after the lockdown of the economy was triggered, the idea was that it would run for just three months – from March to May. That deadline became June and has now been extended for a further four months until the end of October.
Sunak wanted to let businesses know that there would be no cliff-edge to the plan, instead there would be a gradual approach in sync with the stage-by-stage lifting of lockdown restrictions, and he seems to have done that. He may need to provide the same reassurance for the UK’s 5 million self-employed workers, who feel they are being treated less generously.
The chancellor also wanted to make it possible for people to work part-time and still have their wages topped up by the state. Until now, the scheme operated on an all-or-nothing basis: a worker had to be sitting at home doing nothing to qualify. That will change as the country slowly returns to work.
From the start of August, businesses will have to share some of the financial burden with the government, and this will apply whether they remain in lockdown or not. Workers will continue to receive 80% of their pay up £2,500 a month and most of that will still be coming from the state. But a chunk of it won’t.
The Treasury is conscious of the dead-weight cost of the scheme: firms that may not need the wage subsidies but are claiming them anyway. But there will be other firms – the ones that will remain locked down – that will struggle to pay even a small proportion of wages.
Details of how much companies will be expected to pay have yet to be worked out, but this is going to be the toughest part of the plan to get right.
The risk still is that many workers furloughed since March will join the dole queues come the autumn.
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