Searching for a Goldilocks exit from the Coronavirus Job Retention Scheme12 May 2020
The Coronavirus Job Retention Scheme has saved millions of jobs and prevented an even more catastrophic rise in unemployment than we’ve already seen. The Chancellor is right to extend and reform the scheme to prevent more people losing their jobs, but better target help where it is needed most.
First, let’s reflect on the success of the furlough scheme. In the US, 30 million people have filed a new unemployment claim in the six weeks since mid-March. This has led the unemployment rate to spike up to 15%, compared to 4.4% in March.
In the UK, there were 2.5 million Universal Credit claims during March and April 2020, seven times the usual rate. As a result, Learning and Work Institute estimate unemployment has risen above 8%. This is an unprecedented spike in worklessness, but clearly far less than the US.
A major part of the difference is that 7.5 million workers from 1,000 businesses have been furloughed at a cost of £8 billion on the UK’s Coronavirus Job Retention Scheme (CJRS), which covers 80% of furloughed employee’s salaries, up to a maximum of £2,500 per month. Put these together and more than one in four adults are either unemployed or furloughed.
The Chancellor has to strike a balance in planning to exit the emergency support provided by the CJRS. Pulling the plug too soon could lead to many viable businesses going under, and a second wave of unemployment, with lasting damage to our economy. The argument that businesses and workers are ‘addicted’ to the current support is wrong: for many it has involved a 20% cut in their incomes and reducing support further may force people back to work when it’s not safe or onto the dole queue.
But continuing the scheme for longer than necessary would lead to an enormous cost, and for many it would still only be a waiting room for redundancy; many furloughed workers are unlikely to be able to return to their old jobs in a very different post-crisis economy.
At Learning and Work Institute we argued for the following changes, in the search for a Goldilocks solution:
- Extend the scheme until October 2020, with further extensions dependent on social distancing restrictions still in place and economic conditions
- Flexibility to allow short-time working so people can go back to work gradually and work is spread around
- Targeting to focus most support on sectors or firms hardest hit
- Maintain support at the current levels, though asking employers outside lockdown sectors to contribute to wage costs, so as not to squeeze people’s incomes
- Future proofing by tying future extensions to firms signing up to good work standards and the living wage.
The Chancellor’s attempt at a Goldilocks solution involves extending the CJRS until October, allowing short-time working, making no other changes before the end of July but asking employers to make a contribution to wages after that.
That’s eminently sensible and in line with the best measures from around the world, as well as most of our recommendations. For example, employers in Denmark must top up state contributions to wages. That helps give an incentive to employers to think about the long-term viability of roles. The Government is likely to think this will make employers who have shut down even though they don’t need to, to think about reopening. We’ll see.
But there’s still one missing bit of the jigsaw – support for those already out of work and those on furlough to build their skills and find new work where necessary. Not everyone is going to return to their previous jobs. First, ongoing social distancing rules will alter the viability and staffing needs of firms. Many retail and most hospitality businesses will not be operating at full speed for some time. Second, it is likely that there will be permanent changes in consumer behaviour, for example more working from home, and online shopping.
That’s why we need to ramp up employment support for those out of work and provide more active support for staff who are furloughed. We’ll be saying more about support for those out of work soon. For furloughed staff, we should ensure information, advice and guidance, volunteering opportunities, and training, in order to support these workers to adapt and find work. We should also look at further increases to Universal Credit to support people’s incomes if they lose their job.
It’s also right to be flexible for the future: we should be open to continuing some form of CJRS beyond October if we need to. We could tie that to employers signing up to good work standards and paying all employees the living wage, or to firms committing to not making redundancies while receiving support beyond this time.
The CJRS and other emergency support have helped save millions of jobs. The Chancellor has made the sensible decision to extend and reform. We now need extra employment and skills support to help the transition to a new normal.