Covid: What impact has the furlough scheme had?




  • In Business
  • 2020-10-30 00:00:39Z
  • By BBC
Covid: What impact has the furlough scheme had?
Covid: What impact has the furlough scheme had?  

It's been a little over seven months since the government pledged to subsidise the wages of employees hit by the coronavirus pandemic.

Whatever your memories of the occasion, it was a significant moment. The UK's long lockdown had not yet begun, but it was clearly on the way.

On that same date, 20 March, cafes, pubs and restaurants were ordered to close, while three days later, people were ordered to stay at home and non-essential shops were shut.

It was a defining event for Chancellor Rishi Sunak, too, as he unveiled his "unprecedented" furlough scheme.

Drawn up after lengthy talks with business groups and union leaders, it committed the government to paying 80% of the salaries of staff who were kept on by their employer while unable to work, covering wages of up to £2,500 a month.

Under the furlough scheme, which ends on 31 October, around 9.6 million people have benefited at one time or another, with a steep take-up in the first few months.

But that doesn't mean the government was ever paying that many people's wages at any given time.

According to data from HM Revenue & Customs (HMRC), the number of jobs furloughed peaked at 8.9 million on 8 May. It then fell to 6.8 million by 30 June and an estimated 5.1 million at the end of July, by which time lockdown restrictions had eased.

Since then, it has shrunk to about 3.3 million - but that still represents 12% of the UK's workforce. At the same time, those who remained in work saw their hours decline sharply.

Big bill

In his announcement in March, the chancellor extended sympathy to those fearful of losing their livelihoods.

"To all those at home right now, anxious about the days ahead, I say this: you will not face this alone," he said.

Although he has since become one of the country's best-known politicians and currently enjoys one of the highest net approval ratings in opinion polls, Mr Sunak was fairly new in his post at the time.

A week and a half earlier, in his first Budget, he had announced a £30bn package to boost the economy and get the country through the virus outbreak.

Initially, that seemed like a lot. But the chancellor's Job Retention Scheme, to give it its official name. along with other support measures, would end up incurring a far bigger bill.

So far, coronavirus has cost the government more than £200bn, with about £40bn spent on the furlough scheme alone.

As a result, government borrowing has increased substantially to cover the cost of that economic support.

Looking back at that original announcement, it's clear that the government still had only a vague notion of how big the scheme was likely to become.

Mr Sunak said it would last until the end of May, but would be extended for longer "if necessary" - and so it proved to be.

The scheme was then prolonged for another four months, but since August, employers have had to contribute to the cost, leading to a big drop in the number of people on furlough.

Even after those changes, more women than men have been furloughed.

Younger people, who are more likely to work in the sectors of the economy worst hit by the coronavirus lockdown measures, have also accounted for a large proportion of those on furlough.

Less generous

Even now, with the scheme coming to an end, there are many who think it should have been kept going even longer.

But Mr Sunak repeatedly refused to consider the possibility, saying: "I don't think the right thing to do is to endlessly extend furlough."

From next month, it will be replaced with the less generous Job Support Scheme, which is expected to cost the government an estimated £300m a month.

Obviously some sectors of the economy made more use of the furlough scheme than others.

Non-essential shops were closed at the height of the lockdown, so retailers made the biggest claim on the government's resources.

And with pubs and restaurants particularly badly affected by coronavirus curbs, the hospitality industry also saw a high number of workers furloughed.

People working in the arts, entertainment and other leisure activities were also more likely to find themselves on furlough than those in other walks of life.

But as analysts say, the scheme was designed to keep people connected to jobs that would return after the pandemic peak passed. And many jobs in those areas have either not returned or are still threatened by local lockdowns.

As the end of the furlough scheme approached, there was a notable increase in the number of workers made redundant, with the total climbing to its highest level in eight years.

Fraud fears

Influential think tank the Resolution Foundation has described the furlough scheme as "a very successful and well-implemented policy intervention".

"It has supported household incomes in the face of an unprecedented shock and maintained the crucial attachment between employees and their employer," the foundation added.

But as the scheme draws to a close, it's still an open question how history will judge it.

Already it has drawn fire from the Commons Public Accounts Committee, which has spoken dismissively of "hastily drawn up economic support schemes" that provided "unacceptable room for fraud against taxpayers".

HMRC, which administered the furlough scheme, has suggested that up to 10% of the money delivered by the scheme to mid-August - £3.5bn - may have been paid out in fraud or error.

Apart from that, there is the issue of whether it genuinely safeguarded viable jobs or merely delayed the inevitable disappearance of unviable ones.

The chancellor has said that not every job can be saved and has urged those affected to retrain - saying that "everyone is having to find ways to adapt and adjust to the new reality".

But are there jobs available for those who follow his advice? The number of vacancies has fallen sharply during the pandemic - and although there are signs of recovery, the figures suggest that not enough new jobs are being created quickly enough.

Ultimately, the verdict on the furlough scheme may have to await the passing of the pandemic - and that's unlikely to happen any time soon.

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