The Guardian view of the end of the furlough: terrible timing

The daunting scale of the second coronavirus wave becomes clearer by the day. Figures published on Friday by the Office for National Statistics showed more than 50,000 new infections a day in the week to 23 October, up from 35,000 a day a week earlier. The numbers are surging in almost every part of the country and in every age group, with secondary school children showing a particularly steep growth curve. Figures for the week now ending seem certain to be higher still. As a result, tougher restrictions are being introduced across many areas of Britain, with more to come. Pressure for a fuller lockdown, like the ones announced in many of our neighbouring European countries this week, is growing.

This is therefore a very strange time for the UK government’s job retention scheme, better known as the furlough programme, to be closing down. Yet Saturday is the final day of the scheme that the chancellor, Rishi Sunak, introduced at the start of the March lockdown.

The furlough was a lifeline. It paid, at the start, 80% of the wages, up to a ceiling of £2,500 a month, of employees whose firms and workplaces had been closed because of the lockdown. Later this proportion was cut to 60% as the economy began to reopen. Without the furlough, thousands of businesses would have failed and millions of jobs would have been lost. It was expensive; the scheme cost the treasury around £40bn. But it was urgently needed and it was widely effective. At its peak in early June, nearly 9 million people, almost a third of the UK workforce, were in the furlough.

Even now, around 2 million workers – some 8% of the total – still are. Around half of these are in four sectors of the economy: hospitality, arts and recreation, administrative and support services, and aviation. Each of these sectors has been particularly impacted by coronavirus restrictions. Now, with the second surge in Covid cases bringing tighter restrictions and a further fall-off in demand, each is facing fresh and daunting pressures to stay in business in the months ahead.

The job support scheme (JSS) will take over the strain of supporting workers who are still on short time. Thanks to a treasury U-turn earlier this month, the new scheme is now markedly more generous than the one that Mr Sunak originally announced in September. The government will now cover up to two-thirds of an employee’s salary, up to a maximum of just over £2,000 a month, if they also work 20% of their usual hours. But the new JSS scheme is still notably less generous than the furlough has been. It will cost the treasury £300m per month, far less than furlough at its height. In other words, the amount of financial support to workers on short time is being cut just as the public health crisis is getting rapidly worse.

There are three underlying reasons why this is economically unsustainable. First, while some of the most affected businesses may manage to struggle on, many will not be able to service the borrowing they have taken on since March, especially in parts of Britain covered by the toughest lockdown measures. Second, up to a million of the workers still in the furlough scheme are in jobs in sectors such as manufacturing, construction and high street retail, which may be unviable in the long term anyway. Third, a deepening recession, an unemployment rate that is already running at 4.5%, and a sharp fall in vacancies are making the winter outlook for jobs bleaker still.

If the pandemic had in fact been easing, Mr Sunak might be looking to stimulate the economy. Instead he is faced with the opposite challenge. The second wave seems certain to drive a significant new rise in business failures and unemployment which the JSS that comes into force on Sunday may mitigate but not prevent. With more parts of England coming under tier 3 measures, with Wales on the verge of announcing tighter new measures, and with the increasingly real prospect of a further national lockdown, the furlough is coming to an end at the very moment that it is most needed. Without the furlough, Halloween may raise the curtain on an economic horror show.

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