Business Briefing

End of the furlough scheme: what happens next for the UK’s job market?

1.6m workers were still being supported by the scheme in July 

When Rishi Sunak first announced details of the Coronavirus Job Retention Scheme in March last year, he declared Britain was facing a “generation-defining moment” and that “unprecedented measures” were needed to protect the futures of businesses and workers. 

An “enormous wage bailout” saw the government pay 80% of people’s salaries, defer VAT payments and increase out of work benefits, The Times reported. “We are starting a great national effort to protect jobs,” the chancellor said. “We want to look back on this time and remember how in the face of a generation-defining moment we undertook a collective national effort and we stood together.”

Helping employers retain staff during the pandemic, the furlough scheme came into effect on 20 April 2020. After 529 days, including a period of winding down, it officially comes to an end this week, on Thursday 30 September.  

The end date has been “pushed back five times,” the Daily Mirror said, but this is “the final one.” 

How did the furlough scheme work?

Furloughing is granting - or mandating - a leave of absence for a worker. A furloughed worker is someone who remains employed in their regular job, but has been told to stop working.

Under the job support scheme, the government paid 80% of furloughed workers’ wages, up to £2,500 a month, if they were put on leave as a result of the pandemic. 

On 1 July the scheme started to wind down with staff continuing to receive 80% of their wages. However, employers paid part of that for the first time with government support covering 70% of salaries, up to £2,187.50, the Mirror reported. The support then dropped again on 1 August to its current level of 60%, capped at £1,875. 

How much has it cost? 

Since its launch 18 months ago 11.6m jobs have been supported by the furlough scheme, the government said. And according to estimates from the Office for Budget Responsibility the cost will come to about £66bn. “That’s a huge sum”, the BBC said, “around one fifth of the money the government has spent on the response to Covid”.

The scheme has been a “great success” and a “job well done”, said the Resolution Foundation think tank. It has provided for 2.3bn days of furlough, both full and partial, and has “ensured that the worst recession for 300 years saw the smallest rise in unemployment of any recession in living memory”.

How many people are still on furlough? 

During the peak of the Covid-19 crisis, in May 2020 almost 9m people were being supported by the scheme. At the end of July this year, 1.6m were still on furlough, the lowest level since the start of the pandemic and 340,000 fewer than a month earlier, the BBC reported. 

Barring an “unlikely last-minute change of heart”, the wage subsidy will no longer be open to struggling firms and there are fears for the workers still on furlough, The Observer said. The Bank of England is “also growing more nervous” about what will happen to more than 1m still-furloughed workers once employers are responsible for paying their wages in full.

Airport towns could be hit hard

The “loosening” of travel rules “came too late” to save the tourism sector’s crucial summer period, The Telegraph said. And the end of furlough could see airport hubs such as Crawley and Luton face a “sharp jump in unemployment”. 

Close to Gatwick airport, one in ten of Crawley’s workforce were still on the furlough scheme as of the end of July. Meanwhile, Slough, which is near Heathrow, is also “highly vulnerable” with 9% of its workers on furlough.

In Greater Manchester up to 12,000 people could lose their jobs when the scheme ends this week, Business Live reported. Subrahmaniam Krishnan-Harihara, head of research at the Greater Manchester Chamber of Commerce, said a significant number of redundancies could be made in connection with Manchester Airport because of the impact the pandemic has had on the “valuable economic asset”.

What happens next? 

Official figures from the Office for National Statistics (ONS) revealed that the number of job vacancies in the UK surged past 1m in August, the BBC reported. However, business groups said that despite the return of staffing levels to pre-pandemic rates there remained “high demand for more staff, and there was a risk labour shortages would dampen growth”.

The Resolution Foundation expects that hundreds of thousands more workers will be looking for new jobs by the end of the week. “Older workers, who are the most likely to still be on furlough, face the greatest risk of unemployment,” The Times reported.

The chancellor believes the labour market “now needs more customised support” that will match workers still on furlough with more than 1m job vacancies, The Observer reported. Sunak is expected to announce plans in next month’s budget.

“One thing is certain,” said the paper’s Larry Elliott. “In the event that rising infection rates necessitate another lockdown of the economy, Sunak will be under strong pressure to bring furlough back. A precedent has been set.”

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