Friday 10 September 2021 5:55 am

The furlough scheme protected our economy but now it has to come to an end

Eleanor Shearer is a researcher at the Institute for Government

Around nine million jobs were furloughed at the height of the first lockdown in spring 2020 – almost a third of the entire workforce. While the furlough scheme has not been able to protect every job, unemployment during the pandemic could well have numbered in the millions without it – as happened in countries, like the US, without an equivalent scheme. 

At the end of July this year there were still around 1.5m people on furlough. However, it is right that the scheme comes to an end, as planned, at the end of September. 

The furlough scheme cost £1 billion in July and it cannot continue forever. The rationale behind introducing it in March 2020 was to prevent employers being forced to let go of staff that might have had a job to return to once the pandemic had receded and restrictions lifted. And for many sectors, such as hospitality and the arts, where businesses where forced to close during lockdowns, the scheme was a lifeline. In hospitality in April 2020, there were 1.6 million workers on furlough – almost 80 per cent of all employees in the sector. 

But with most restrictions now lifted, businesses should have a clearer idea of whether they will be able to retain staff long term or not. The end of the furlough scheme may well mean an increase in unemployment. But with the number of job vacancies in the UK now above pre-crisis levels, there are more job opportunities for people coming off furlough now than there were when the scheme was last due to end in October 2020.

As it ends, the scheme can be considered a success. The UK was not the only country to implement a furlough scheme, but it was one of the fastest to do so while designing the scheme from scratch. France and Germany both made their existing wage subsidy schemes more generous to support employment during the pandemic, and Canada took almost a month longer than the UK to announce its own plan. Meanwhile, the US chose to protect employment by instead offering companies a loan to cover payroll costs, but this support was not available to all companies. Both the US and Canada ended up seeing much more significant falls in employment than in France, Germany and the UK – a fall of almost 20 per cent in Canada between February and May 2020, and almost 15 per cent in the US over the same period. UK employment, at its lowest, only ever fell by 3 per cent thanks to the furlough scheme. 

The furlough scheme has also put the UK’s labour market on a firmer footing than in some other countries. The US and Canada have both seen their GDP bounce back to pre-crisis levels faster than the UK, but their employment levels remain below where they were at the start of 2020. In the UK, employment was only 1 per cent lower in July 2021 than in February 2020.  

There are a few sectors, such as aviation, that continue to be affected by the pandemic due to restrictions on international travel. These sectors may well need additional support beyond the end of the furlough scheme, but this support should be targeted specifically at these businesses. There will be an administrative cost to working out which businesses are eligible for more targeted support, but this cost is far outweighed by the cost of a blanket extension of the furlough scheme when many of the jobs it is currently supporting might never return.

As the labour market returns to normal – and assuming that there is no need for Covid restrictions to return in the autumn and winter – the scheme needs to come to an end for the bulk of our economy.

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