Coronavirus job retention scheme: Ian McConnell: Two takes on furlough: sadly Rishi Sunak’s one will mean misery

IT should always have been with trepidation that we approached Rishi Sunak’s latest planned furlough end-date.

This is because it should have long been apparent to anyone with even a passing interest in the labour market that this month will not be the right time to end the crucial coronavirus job retention scheme just because the Chancellor says it is.

In fact, based on Mr Sunak’s track record, we should maybe worry even more if he proclaims confidently that his plan is the right one.

Remember last year around this time, when Mr Sunak was insisting the furlough scheme could end on October 31, 2020 and seemingly believed this would not be too much of an issue? He kept up this stance as the second wave of coronavirus built. And he was forced into a massive U-turn in excruciating stages, eventually having to extend the furlough scheme out as far as this month.

So one thing is clear – everything will not be okay on the furlough and labour market front just because Mr Sunak says it will.

 

We should also bear in mind that, in senior Tory ranks, there seems to have been impatience to bring the furlough scheme to a close almost as soon as it began in the spring of last year. It continues to appear that such broad state support, even though it has been crucial to fending off disaster in the labour market and broader economy amid the coronavirus pandemic, goes very much against the instinct of some Tories.

In this context, the tone of a press release last week from the Treasury on the latest furlough figures was notable. It was also alarming, particularly in terms of Mr Sunak’s chosen interpretation of the numbers.

The press release was headed: “Numbers on furlough fall to lowest level since start of pandemic.”

This line was picked up faithfully in much of the media. It is an interesting enough fact, of course, but the problem is that it tells only part of the story, and might even give the impression that Mr Sunak is quite right to end the furlough scheme.

What is obviously far more important in terms of policy-making is the number of people still on furlough, and the breakdown across sectors and by age and geography, and crucially also the rate at which the figure has been declining.

It is, of course, good news that furlough numbers have fallen to their lowest level since the start of the pandemic. This means the scheme is far less expensive than it was – although the cost was always far more than justified by the economic and societal benefits whatever some people who could not see the bigger picture might have spouted about there not being the money to fund it.

The number of people on furlough was, at the peak in May 2020, nearly nine million, so anyone who had refused to believe the obvious reality that the numbers would decline sharply as the economy reopened (there were disgusting claims people on furlough were lazy) has been proved wrong.

However, the crucial point is that we are not there yet in terms of full reopening and things operating as normal.

Look, for example, at an international travel sector which takes in airlines, airports, ground-handling operations and holiday companies and is a huge employer in the UK. It is plain for all to see that this sector is very, very far from normal amid continuing onerous coronavirus-related rules and restrictions.

More broadly, the key point from the Treasury release in terms of looking ahead and setting policy is surely that “a total of 1.6 million people were on furlough as of 31 July”.

The Treasury noted around 340,000 people had moved off furlough over the course of July, with the total number on the programme having been “almost two million at the end of June”.

It claimed this was “a sure sign the Government’s Plan for Jobs is getting people back to work”.

This seems unlikely. The fall in the numbers is presumably far more to do with the easing of coronavirus-related restrictions and the further reopening and rebound of key sectors of the economy rather than the relatively inconsequential measures in the UK Government’s “Plan for Jobs”.

What was far more alarming than this somewhat pathetic attempt by the Government to claim credit was Mr Sunak’s analysis of the furlough figures.

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He said: “It’s fantastic to see furlough levels at their lowest since the start of the pandemic with young people in particular getting back to work and kickstarting their careers as the UK gets back to business.With furlough naturally unwinding and coming to a close at the end of the month we are doubling down on our Plan for Jobs – focusing our support on giving people the skills and opportunities they need to succeed in the jobs of tomorrow.”

There is nothing natural about furlough coming to a close this month. It is coming to a close this month only because Mr Sunak and the Boris Johnson administration – which has proved bumbling on so many fronts when it has come to the economy – say it is.

It you want a more reasoned analysis of the furlough situation, it would be best to look at the Resolution Foundation’s assessment last week.

One very important observation made by the independent think-tank, which is focused on improving the living standards of those on low to middle incomes, is that there has been a sharp slowdown over the summer in the number of people coming off furlough.

And the think-tank’s estimate that up to one million people could still be on furlough when the scheme is ended by Sunak and co. at the end of this month is something that should surely make even the Boris Johnson administration sit up and take note.

It seems like a very reasonable estimate of the likely position, looking at the numbers.

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To put this in the context of the labour market misery that has arisen to date from the pandemic, and make no mistake there has been plenty even with the crucial support of the furlough support scheme, UK unemployment on the claimant-count measure was 1.24 million in February 2020, ahead of the coronavirus pandemic hitting. It peaked at around 2.7 million as the crisis took hold. While it has since declined a bit, its 2.19 million level in August is nearly one million higher than the number ahead of the pandemic.

This is a grim situation, which the UK Government should be at pains to make sure does not get worse.

So you would surely hope the Tories would be interested in thinking again about whether they really want to shut down the coronavirus job retention scheme with one million people, or thereabouts, still on it. The “Plan for Jobs” is chicken feed relative to the scale of the actual problem, and it is not as if we have seen any sign at all yet from Mr Sunak that he is planning any kind of adequate successor programme following his proposed shutdown of the furlough support scheme. We are halfway through September, so this is a truly incredible situation.

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In response to the latest furlough data from the Office for National Statistics and HM Revenue & Customs, the Resolution Foundation said last week: “The number of employees coming off the furlough scheme slowed in July, and plateaued in the first half of August with around 1.6 million employees still on the scheme, highlighting…the risks of a fresh rise in unemployment this autumn.

“New HMRC data on the number of employees on the furlough scheme up to the end of July showed that 340,000 people came off the scheme in July – far lower than the 550,000 fall seen in June. More up-to-date ONS data…shows that furlough rates were broadly unchanged between the end of July and mid-August.”

The Resolution Foundation noted “workers still on the scheme are heavily concentrated in a few sectors of the economy – with around half of all staff in air transport and travel agencies still on furlough”. It observed that “London remains Britain’s furlough hotspot, with eight of the 10 local authorities with the highest furlough rates in the capital – along with Crawley and Slough, whose local labour markets are dominated by Gatwick and Heathrow airports”.

And it pointed out that, “while young people are still coming off furlough relatively quickly, older workers are more likely to be ‘parked’ on the scheme – with employees over the age of 65 the most likely to be [on] furlough”.

The Resolution Foundation warned of a “fresh rise in unemployment” this autumn with the ending of the furlough scheme, and pointed out, quite rightly, that against this backdrop “now is not the right time to cut universal credit by £20 a week”.

Charlie McCurdy, economist at the Resolution Foundation, said: “The number of people coming off furlough over the summer has slowed to a trickle, as some firms and sectors – notably overseas tourism – struggle to return to pre-pandemic levels of activity.

“As a result, up to a million employees could still be on furlough when the scheme closes at the end of this month. While we expect most of these staff to return to their previous roles, a significant number will not, and we could see a fresh rise in unemployment this autumn.”

Mr Sunak should take a look at the Resolution Foundation’s concise but comprehensive analysis of the reality of the situation.

He should also reflect on what has already happened to the claimant-count number, and whether he wants to see a renewed surge in this.

The Chancellor should think long and hard about whether or not it is sensible to end furlough at a time when some industries and many businesses are unable as yet to operate normally, and contemplate whether patience might be a virtue in this instance. He probably will not heed, or respond to, the reality. But he most certainly should if he is interested in UK economic recovery, and by extension tax revenues for the Exchequer and a lower benefits bill.

The Herald Scotland

The Herald Scotland

The Herald is a Scottish broadsheet newspaper founded in 1783. The Herald is the longest running national newspaper in the world and is the eighth oldest daily paper in the world. The title was simplified from The Glasgow Herald in 1992