LIFE AFTER FURLOUGH: SOFT LANDING OR TURBULENCE AHEAD?

The Job Support Scheme will make a difference, but needs to be part of a comprehensive plan for jobs, skills and incomes. 

The furlough scheme helped to protect millions of jobs, with the Government covering 80% of people’s wages up to £2,500 per month. Without it, unemployment would have risen off the charts.

But it was always going to end at some point. Many people have come back to work as the economy began to reopen over the summer.

But with around three million people still furloughed, the end of the Coronavirus Job Retention Scheme in October risked a second spike in unemployment, particularly as the resurgence of the virus has led to tighter restrictions once more.

With businesses, particularly in retail and hospitality, facing reduced demand and constrained capacity, it’s obvious that they would need fewer employees without Government support.

New and extended support

The question is what that support should be. The Chancellor’s answer is a Job Support Scheme, open to large firms with significant falls in turnover and all small businesses.

For people working one-third of their hours, businesses and the Government will share the costs of topping up their wages. Alongside this, the Self Employment Income Support Scheme will be extended, with some adjustments, and further support given to the most affected businesses.

It’s good to see direct support for wages, linked to doing at least some work – we need to get people back to work and start to identify jobs that might not be viable so people can find new jobs and the economy can adjust.

The Treasury is clearly not a fan of sectoral targeting of wage support, and to be fair it can be complex and lead to people missing out. Its trade off is to have a scheme with wider eligibility which inevitably means some money will be spent where it isn’t needed. But in a crisis like this it is better to err on the side of providing more support.

Take-up and cost are uncertain, and will be affected by some of the incentives for employers described below. The cost per person is capped at £698 per month, but based on the furlough scheme is likely to be much lower, more likely £300 per month.

Take up could be something like 1-2 million (lower than the 3 million likely to be currently furloughed, and not all the same people). This would give a monthly cost of £300-600 million, and lifetime scheme cost of up to £3.6 billion (but likely less as take-up will vary over time).

The trouble with the Job Support Scheme

The Job Support Scheme (JSS) does risk some odd incentives. Employers can claim a £1000 Job Retention Bonus for furloughed staff they keep continually employed until January, as well as the Job Support Scheme if those staff are working one third of their hours.

This will likely increase the number of currently furloughed jobs saved. But does this mean we’ve just pushed the cliff edge for some furloughed jobs to January?

Similarly, an employer is going to be paying an employee for more hours than they will be working, because they have to share the cost of topping up wages with the Government.

This is one way in which the JSS differs from the widely quoted German Kurzarbeit scheme which covers the costs of non-working hours. Won’t this mean many employers shy away from the JSS and cut hours or jobs instead?

Four missing bits of the jigsaw

1. Promoting employment growth.

It’s no good cutting support for current jobs if we don’t have sufficient jobs for people to move into.

Our report [MISSING MILLIONS: WHERE WILL THE JOBS COME FROM?] suggested that the time the labour market takes to adjust coupled with the constraints on jobs-rich sectors like retail and hospitality, could leave us with a one million jobs gap.

So we also need to invest in job creation and support employment growth.

2. Retraining and skills support.

Even if we create the jobs, many will need help to get the skills for those jobs. This was one of the missed opportunities of the furlough scheme; there was little sustained effort to help those temporarily not working to improve their skills.

We shouldn’t miss that opportunity again. At the very least, we should proactively encourage people to take part in learning, and invest more in upskilling and retraining as we recently argued.

3. Employment support.

We already have 3.2 million people who are out of work but want a job, and more will lose their jobs in the months ahead.

Doubling the number of Jobcentre Plus Work Coaches and introducing Kickstart, paid work placements for young people, is great but nowhere near enough – we’ve set out proposals to get people better help more quickly.

4. Income support.

Universal Credit is going to become even more important: people are likely to have their hours cut (given the extra costs of employers of keeping someone on under the JSS) and so need their incomes topped up; and we need viable support for people who are ill or asked to self-isolate.

The increase in Universal Credit, announced at the start of lockdown, is due to end in April. This makes little sense, particularly after five years of a working-age benefit freeze. We need to increase and widen support.

We need a comprehensive plan for jobs, skills and incomes

All in all, the Job Support Scheme is welcome and will make a difference. But its nature, and the situation we find ourselves in, mean it is not enough to prevent a jobs crisis.

It is likely to reduce the peak of unemployment and spread it out further, rather than prevent it.

The Winter Economic Plan is unlikely to be the last statement the Chancellor makes during this crisis: we need a comprehensive plan for jobs, skills and incomes.

Stephen Evans, Chief Executive, Learning and Work Institute