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Grave expectations

8 September 2020 By Aimee Donnellan

T.S. Eliot famously wrote: “Humankind cannot bear very much reality.” Grim reality will, however, hit the UK labour market if finance minister Rishi Sunak ends the government-backed furlough scheme in October as scheduled.

The government has spent 35.4 billion pounds on the scheme, which covers 80% of the salary costs of furloughed staff and was extended to more than 9 million Britons at its peak. By July, more than half of claimants had returned to work, the Resolution Foundation estimates. And the economy is recovering after contracting by a fifth in the second quarter. But 3.5 million people still rely on the lifeline, the Bank of England says. They may become unemployed once it is withdrawn. That would cause the jobless rate to nearly treble to 11% by 2021, according to KPMG.

The labour market is already dire. Around 730,000 jobs have been axed since the beginning of the pandemic, according to the national statistics office. There will be pressure on Sunak to extend the furlough scheme in the hope that more companies will recover and there will be fewer job losses. Not least because Germany is extending government support for a similar scheme to 24 months. But given some businesses will eventually fail anyway, he may only be delaying the inevitable cull and racking up billions of pounds of debt in the process.

True, a surge in online shopping is prompting some grocers to create jobs. Tesco said in August that it would hire 16,000 workers, and Aldi will take on 4,000 new staff. The hitch is that they may pay lower salaries than some new hires were paid before. A full-time Tesco warehouse worker will earn 19,000 pounds annually, compared with an average national salary of 30,000 pounds.

Any job may be better than none – for people, as well as the government’s coffers. And while the lifeline is ending, Sunak is offering companies a one-off 1,000 pound bonus for any furloughed worker retained through to January. This may help to stagger out job losses. But with millions of posts at risk, and many of the new ones paying relatively low wages, Britain may take a while to recover fully from recession.


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