'It costs less to keep people off the dole'

The government faces mounting pressure to extend its furlough scheme or else face an unprecedented wave of unemployment crushing any hopes of an economic recovery.

The furlough scheme, also known as the Jobs Retention Scheme (JRS), where the state covers 80 per cent of people’s wages for those who cannot work during lockdown, was first introduced in April to help support workers who would have otherwise faced redundancy.

There are more than 9m people on furlough, but they face an uncertain future after the scheme is set to abruptly end by the end of October. It is now slated to begin winding down next week, when employers will be asked to contribute more to the scheme.

Hopes that the scheme would be extended were dashed after chancellor Rishi Sunak, in his summer statement earlier this month, vowed that the scheme would end as scheduled, noting “Leaving the furlough scheme open forever gives people false hope that it will always be possible to return to the jobs they had before,” while also admitting the end of the scheme would be “a difficult moment”.

But economic experts have called on Sunak to reverse his decision, arguing that it would be far better for the economy if the furlough scheme were extended or modified.

The latest of these to call for an extension of the scheme is the National Institute of Economic and Social Research (NIESR), which said that more than 1m jobs could be saved if Sunak decides to extend the scheme into 2021.

The leading economic forecasters note that extending the scheme into to mid-2021 would cost a relatively small sum of £10bn and would essentially pay for itself because of the added tax revenue from people kept in work and higher consumer spending, as well as a 0.2 GDP uplift as a direct consequence of extending the scheme.

Extending the furlough scheme could also stop more than a million people from becoming long-term unemployed, known as scarring, which would hamper an economic recovery.

“The planned closure of the furlough seems to be a mistake, motivated by an understandable desire to limit spending,” said NIESR deputy director Gary Young said. “The scheme was intended by the Chancellor to be a bridge through the crisis and there is a risk that it is coming to an end prematurely and this increases the probability of economic scarring.”

Young went on to say that the Job Retention Bonus, announced by the chancellor in his summer statement, does not go far enough. The Bonus, meant to replace the JRS, would pay employers £1,000 for every furloughed worker that they retain until at least January.

Young said that while the furlough scheme has been an “undeniable success” the incentives offered by the Jobs Retention Bonus “look too small to be effective given the uncertainty about the economic outlook ─ a one-off payment of £1,000 per employee compared to an average wage of £530 per week”.

Redundancy protection

In other news of the furlough scheme, new laws have been brought in effective from today (July 30) that will mean furloughed workers who lose their jobs will have redundancy pay based on their normal wage and not the 80 per cent reduced furlough rate.

The government has said the new laws will protect workers from being short-changed if they are made redundant.

Commenting, business secretary Alok Sharma said, “We urge employers to do everything they can to avoid making redundancies, but where this is unavoidable it is important that employees receive the payments they are rightly entitled to.

“New laws will ensure furloughed employees are not short-changed and are paid their full redundancy pay entitlement – providing some reassurance in an undeniably testing time.”

Protect jobs call

But TUC general secretary Frances O’Grady said the new laws will offer little consolation to millions of workers whose jobs are simply not protected without further government support.

 “People should get full redundancy pay, but the Government must be focused on stopping job losses in the first place,” she said. “We urgently need targeted support for hard-hit industries, and extension of the furlough scheme beyond October for those who need it.

“Without this, we risk an avalanche of redundancies in the autumn and undermining the economic recovery.”

Unite assistant general secretary Steve Turner agreed.

“As the clock ticks down to the end of the JRS, tens of thousands of redundancy notices have already been issued,” he wrote in comment piece on Labour List today (July 30). “Right across our nations, workers are holding their breath, fearing the worst when the point in August, September or October comes, and employers say that they cannot afford to keep them on.”

Turner noted that Unite is now working closely with the Labour frontbench team and respected economists to help devise a modification of the furlough scheme that could hundreds of thousands, if not millions, of jobs.

“Essentially, we want to show to government that it costs less for the Treasury to keep people in work and off the dole, earning and spending, than keeping them idle, fruitlessly and destructively, on this country’s pauper-level benefits,” he wrote. “We see no shame in borrowing the best of the French and German short-term working schemes – respectively, the Chomage Partiel and the Kurzarbeit – which have saved thousands of jobs in those nations.

“We’ve got backing from serious players in industry, with our shop stewards across manufacturing now working to get their employers on board, too,” he continued. “In fact, it is only within the higher reaches of this government that there is no serious look at imaginative solutions to avert large scale redundancies. It seems a no-brainer to us that government’s very purpose is to use its unique powers to improve our lives – certainly it should do no harm.”

By Hajera Blagg