Much of the UK’s labour market is on life support. Official figures show that around a fifth of the workforce has been furloughed at the state’s expense, while more than 2m individuals have applied for unemployment benefits since the start of the coronavirus lockdown.
The rapid creation of the government’s job retention scheme — which allows employers to furlough workers on 80 per cent of regular pay — has been crucial in keeping smaller businesses afloat and preventing a steeper rise in unemployment, employers say.
But with the scheme covering 6.3m jobs, Treasury officials are locked in intense discussions as they try to work out how to phase it out without triggering a wave of redundancies. “We want ways to wean people off and get this right,” said one government figure.
Norman Lamont, the former chancellor, warned that “part of the consequence of the furloughing scheme . . . is to lull people into a false sense of security”. Speaking on Behind the Story, a podcast, on Wednesday, he said: “Some people sitting at home may not realise . . . that their jobs have disappeared or are about to disappear or that their firm is in serious trouble.”
A survey conducted by the CIPD, the body for HR professionals, suggested that over half of employees who had been furloughed would have been made redundant in the scheme’s absence.
Giving businesses certainty on the conditions under which they operate as the economy reopens, and the level of support they can expect, will be crucial to avoid a wave of job losses across the UK, say business groups.
Rishi Sunak, the chancellor, assured employers on Monday that there would be no “cliff edge” when the current version of the job retention scheme expires at the end of June, saying he was working to find “the most effective way to wind down the scheme and ease people back into work in an effective way”. But he also made it clear that the cost of the programme — in some scenarios comparable to the cost of the NHS — was not sustainable.
The challenge facing the chancellor is adapting the scheme — originally intended to preserve jobs until the economy could bounce back from the lockdown — for what now looks like a slow, protracted recovery in which many businesses will be unable to operate at capacity for months — and from which some sectors may never fully recover.
The main demand from employers, echoed on Tuesday by Keir Starmer, the Labour leader, is to extend the scheme in a more flexible form, allowing furloughed staff to work part-time — for example, working a few hours a week to clear invoices or update social media. The Treasury initially resisted this — saying it would be impossible to tell whether employers were cheating the system — but now it is looking at ways around the problem.
The chancellor will also need to decide how quickly to taper the proportion of wages the government covers and whether or not to offer support for longer to the worst-affected sectors. “There’s nothing to stop us doing various ways of cutting it . . . we want ways to wean people off and get this right,” said one government figure.
This will involve some difficult trade-offs. Although the first goal will be to reduce the risk of a sharp rise in unemployment, the government will not want to pay to keep workers idle for months on the payroll of companies that do not have a future.
“We want to facilitate the reallocation of workers from sectors that are going to shrink to ones that are going to grow,” said Stuart Adam, senior research economist at the Institute for Fiscal Studies — but he added this must be set against the advantages of keeping workers in firms where they already had knowledge and experience that would be hard to replace.
Torsten Bell, director of the Resolution Foundation, a think-tank, also argued that while companies in hard-hit sectors, such as tourism and hospitality, might need support for longer, the ultimate aim should be to help the people working in them to move into jobs with better long-term prospects. “We owe it to those people to help them make the adjustment,” he said.
Tapering the support available through the job retention scheme is one way to encourage companies to adjust in the short term. But with unemployment set to rise and remain high for some time, think-tanks and unions argue that the government will need to play a much more active role in the labour market, giving long-term support for employment, for some time.
The Trades Union Congress has called for the government to fund a “jobs guarantee”, providing work and training at the national living wage for a minimum of six months — with the priority being to help young people who now face big hurdles to entering the labour market.
“Many jobs will not be available again immediately, or perhaps ever,” the Institute for Fiscal Studies said in a report published this week. The think-tank called on the government to play a more active role in helping to move furloughed workers into areas that were struggling to recruit.
The IFS said there would still be some areas where unemployed people would struggle to find jobs that matched their skills and argued that there was a stronger case than usual for the government to “consider public investments that would employ these people in the interim to do productive work that will pay off later, such as improving national infrastructure”.
Interventions of this kind would be a radical change of approach for officials in the UK, where labour market flexibility has often been seen as the key to helping people into work.
“A striking success of British policy in the last three decades was creating a labour market that clears easily at low levels of unemployment,” said Giles Wilkes, a former No 10 adviser and fellow at the Institute for Government think-tank.
“They won’t give that up easily.”