Sunday, May 23, 2021
Furlough worked. Now it will be hard not to make it a habit.
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt. Not to be reproduced without permission.

It is a mere 14 months ago, but it seems like longer, as have a lot of things over the past year or so. On March 20 2020. Rishi Sunak stood at the Downing Street podium and announced an economic intervention “unprecedented in the history of the British state”. It was a big moment, so much so that I wrote a commentary about it on the front page of this newspaper at the time.

The young chancellor, only five weeks into the job, was announcing the coronavirus job retention scheme, otherwise and more generally known as the furlough scheme. As you will recall, it provided for the government paying 80 per cent of the wages of furloughed workers, up to £2,500 a month, with an associated and more controversial scheme for the self-employed.

The scheme was designed quickly and with the expectation that employers would pay the remaining 20 per cent although, as Sunak said at the time, firms could choose to do this or not. There would be no limit on the amount of funding for the scheme, something you do not hear very often from the Treasury. It would be backdated to March 1 2020, and was initially intended to last until the end of May, a mere three months, though the chancellor said that he would extend it for longer if necessary.

You do not often hear either a Tory chancellor thanking the Trades Union Congress, as well as the CBI, for its constructive contribution to the putting together of the scheme from a standing start.

The initial three months for the job retention scheme turned into 19 as a result of further lockdowns, assuming that it is fully phased out in line with current plans at the end of September this year. It has, as promised, been a hugely significant intervention in the economy.

Figures from Her Majesty’s Revenue & Customs (HMRC) show that a cumulative total of 11.5 million jobs have been supported by the scheme at various times during the pandemic, and at its latest count, the end of March, 4.2 million “employments” were furloughed. To put that 11.5 million in perspective, it is equivalent to more than 40 per cent of the number of employees in the UK before the pandemic struck.

The chancellor said at the outset that there would be no funding limit, which was perhaps just as well. Had we known in March last year that the scheme would have cost a cumulative £61.3 billion by April 14, many would have gulped. In his March budget, the Treasury costed the extension to the end of September at £6.9 billion, adding up to a total cost of not far short of £70 billion.

No scheme is perfect, particularly one put together as quickly as the furlough scheme was. A minority of furloughed workers were able to take on other jobs, perfectly legally, and enjoyed a double income at taxpayers’ expense. Some say that the scheme could have been more carefully targeted and less expensive. Some also warn that the cushioning effect of the scheme may hamper the necessary adjustment of the job market to the country’s post-pandemic future.

The self-employment income support scheme, on the other hand, about which I know I will get emails, has been criticised for being too targeted and too restricted in its eligibility. Its extension in the budget, incidentally, was costed by the Treasury at £12.8 billion, more than the cost of extending furlough.

According to the Institute of Employment Studies (IES), drawing on official figures, the share of self-employment in the total number of people in work, 13.3 per cent, is now at its lowest since 2009. Most of the fall in self-employment, however, has been as a result of a shift from self-employment into becoming an employee, perhaps into some of the jobs that cropped up during the pandemic, such as test and trace and delivery work. Even actors were forced to turn their hands to other roles.

The furlough scheme was intended to provide a bridge back to normality for the job market. There have been one or two false moves – last September the scheme was due for the scrapheap and a new one, including a £1,000 job retention for firms – but it has succeeded.

Figures last week showed that the unemployment rate edged down to 4.8 per cent in the first three months of the year, despite lockdown. The rate has never been above 5.1 per cent during the pandemic. After the 2008-9 financial crisis, it took until well into 2015 to get down to that level, the rate having peaked at 8.5 per cent after that recession. Previous post-recession unemployment peaks were much higher than that.

A recovering economy is, meanwhile, bringing renewed optimism on jobs. Officially recorded vacancies slumped to 341,000 in the spring of last year but have now recovered to 657,000. Every survey of employment intentions is very strong.

Forecasters, who feared a post-furlough surge in unemployment, are revising their expectations. The Bank of England now thinks the peak will be as low as “just under” 5.5 per cent. Given the scale of the recession that would be an extraordinary achievement. As Tony Wilson, director of the IES, puts it: “The single most important reason why unemployment is now below half where we thought it’d be last summer is because of the furlough scheme protecting jobs. We’ll have the lowest post crisis peak in unemployment since the mid-1970s, despite a fall in output greater than any in living memory.”

The furlough scheme is now winding down gracefully. From 20 per cent of employees furloughed in January, the latest official snapshot suggests a figure of 10 per cent in late April and early May.

Its success, however, will post a challenge for future chancellors. In normal circumstances recessions result in rises in unemployment, sometimes very large ones. It is part of the normal order of things and, indeed, part of the economic adjustment that occurs. Other countries have long had schemes to limit the rise in unemployment during and after recessions but, as the chancellor noted when launching the job retention scheme last year, in UK terms his intervention was unprecedented.

The precedent he has now set, though, will make it hard for his successors not to intervene heavily too. If a significant rise in unemployment could be prevented during the worst recession for more than 300 years, why not during a “normal” downturn. A near doubling of unemployment was the norm in the four recessions that preceded the 2021-21 pandemic recession, and that may no longer be acceptable. Success brings its own challenges.