As the furlough scheme ends, what would an extension of state support for workers actually look like?

Analysis: Many believe that recent disappointing news on infections and the economy will force the Treasury to do more to support jobs and livelihoods. Ben Chu looks at the options

Sector-focused schemes could see restaurants remain eligible for furlough cash (PA)

The government insists the coronavirus job retention scheme – known as furlough – which has been winding down since August will definitely end on 31 October.

The timetable for winding down furlough, announced by the chancellor in May, was predicated on the assumption that the economy would be recovering strongly by now and that the virus would be under control.

That assumption now looks increasingly questionable. A spate of local lockdowns and new national public health restrictions introduced this week – all of which are likely to have a negative economic impact on many businesses – have heaped pressure on the Treasury to put in place something to replace the furlough scheme in order to prevent joblessness spiking back to 1980s levels in the weeks and months ahead.

In July, the Treasury announced a £1,000 payment to firms next year for every worker that they bring back, and other funding for retraining young people.

But most labour market analysts simply don’t think that this package will be sufficient to cushion the shock of the end of the furlough. Many now believe that the Treasury’s hand will be forced by more disappointing news.  

The fact that most major European governments have extended their own furlough schemes into next year may also make action more likely here.  

But what would a UK furlough extension or replacement look like? Many, including the Resolution Foundation think tank, are calling for a sectoral approach to protecting jobs.

Not all firms have been hit equally by the crisis. Levels of activity in sectors such as retail, hospitality and leisure have been hit far harder by the pandemic and the lockdown than others such as financial services.

Restaurants, cafes and shops furloughed a far higher proportion of their workers than banks and insurance firms.

The total number of jobs furloughed under the scheme according to HMRC is 9.6 million, around a third of the nationwide total.  But many have returned to work as the lockdown restrictions have eased. The total number still on the scheme was down to around 7 million at the end of June, according to HMRC.

We don’t know how many are on the scheme as of this month but most analysts think it is considerably fewer, probably below 4 million and possibly as low as 1 million.

These residual workers, though, would presumably be at high risk of being made redundant given that they have not been called back to work as much of the economy has re-opened.

The logic of a sectoral approach is to protect this vulnerable group, rather than creating perverse financial incentives for all employers to furlough staff who they would otherwise be employing normally.

Resolution proposes a slower phasing out of the furlough support for employers in these specific sectors such as retail, leisure and hospitality.

So, for instance, a restaurant still suffering from weak custom due to a local lockdown could apply and receive cash from the government into November and December to pay furlough wages rather than being forced to lay staff off.

The Trades Union Congress is calling for a new job protection and up-skilling scheme to replace the furlough. This would mean wage subsidies for the payroll of individual firms who can show their businesses have been hit by coronavirus restrictions, and a reform of the programme to allow people to combine part-time work with retraining.

It’s an approach that has support not just from Labour and the unions. “There is a case for wage subsidies,” says Rupert Harrison, a former adviser to past Conservative chancellor George Osborne.

The argument against doing this – as made by the Governor of the Bank of England among others – is that many of these vulnerable jobs are unlikely to return as the economy undergoes a permanent structural shift. More working from home on a permanent basis may, for example, lead to permanently less demand in city centres for sandwich shops and cafes.  

If one accepts this then it’s a waste to spend billions of pounds of public money on keeping those workers attached to their old employers through a furlough scheme and that the money would be better spent retraining those workers to find new jobs.

The argument for extension is that we don’t know for definite that those old jobs are not coming back. A vaccine could be rolled out relatively soon, which would enable custom to flood back – saving many of those jobs.

A new furlough type scheme, even a targeted one, would not be cheap. Claims made under the existing furlough scheme last month had amounted to £35bn. Yet the National Institute for Economic and Social Research argues that the costs of mass unemployment – both for the public finances and in terms of the impact on the wider economy – would swamp the costs of extending the furlough support. 

Allied with this is the argument that, while the government is still effectively suppressing economic activity to protect public health, the moral case for some kind of furlough-type support remains.

“Sadly, the pandemic isn’t scheduled to end in October – nor should government support for jobs and livelihoods,” argues Frances O’Grady of the Trades Union Congress.