Ending UK furlough scheme may cost ‘1.2m jobs’, think tank predicts

The government’s decision to end the furlough scheme is a “mistake” that could trigger the loss of 1.2 million jobs by the end of this year, a leading think tank has warned.

Amid faltering hopes of a V-shaped economic recovery, the National Institute for Economic and Social Research (Nieser) says that continuing the wage subsidy programme “might have paid for itself” by saving jobs and protecting skills.

By contrast, ending the scheme in October may help push unemployment “from 1.35 million to three million”, according to the experts, who also predicted that “the economy would not return to pre-pandemic levels until the second half of 2023”, The Times reports.

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Continuing the government subsidies - which currently cover 80% of pay up to £2,500 a month - “would have been relatively inexpensive, and by preventing a rise in long-term unemployment might have paid for itself”, said Nieser deputy director Garry Young.

“The planned closure of furlough seems to be a mistake, motivated by an understandable desire to limit spending. There is a risk it is coming to an end prematurely and this increases the probability of economic scarring,” he added.

The furlough scheme has supported around 9.5 million workers in a total of about 1.2 million companies to date, and has cost £31.7bn, according to latest Treasury figures.

The Office for Budget Responsibility estimates that by the time the scheme is wrapped up, it will have cost a total of £52bn.

Chancellor Rishi Sunak said earlier this month that the scheme “cannot and should not go on forever”. Instead, the support programme will be replaced with a Jobs Retention Bonus of £1,000 to be paid to businesses for every furloughed employee kept on as staff until at least January 2021.

However, Young argues that the bonus is “too small to be effective - a one-off payment of £1,000 per employee compared to an average wage of £530 per week”.

The Bank of England’s chief economist, Andy Haldane, claimed last week that Britain is heading for a V-shaped recovery, but rival central bank policymakers fear that the economy is “struggling” as job cuts gather pace, The Guardian says.

Nieser shares these gloomier expectations. The think tank expects the UK economy to “shrink 10% this year and recover just 6% in 2021”, while the national debt is projected to “hit 105% of GDP as borrowing jumps from 2.4% to 17% of GDP to pay for the crisis”, reports The Times.