Over one million people currently furloughed are unlikely to get their jobs back when the scheme ends, according to the Office for Budget Responsibility (OBR).
The budget watchdog warned on Tuesday that around 15% of the 9.4 million people on the government’s job retention scheme may not be able to return to work when the scheme ends in October. That would leave 1.4 million workers jobless.
The warning forms part of the OBR’s “base case” for the UK economy. The government agency expects UK GDP to fall by 12.4% this year and unemployment to peak at 11.9% at the end of 2020.
In the worst case scenario, the OBR said as many as 20% of furloughed workers could struggle to get their jobs back.
The budget watchdog warned that its forecasts for furlough were rough estimates, as “there is limited evidence on which to draw here”.
Major corporations including Airbus (AIR.PA), British Airways (IAG.L), EasyJet (EZJ.L), Rolls-Royce (RR.L), BP (BP.L), Centrica (CNA.L), and Bentley have all announced thousands of job cuts since the pandemic struck. Lockdown and fears of contracting COVID-19 have led to collapsing demand in sectors such as travel, hospitality, and retail. Demand is not expected to recover for years.
It is not clear how many, if any, of those staff affected by redundancies are currently on furlough. However, government rules allow firms to start consultation processes while staff are on the job retention scheme.
Frances O’Grady, general secretary of the Trade Union Congress (TUC), said on Tuesday: “Mass unemployment is the biggest threat facing the UK.”
Watch video below
It came as new figures showed the UK economy recovered much more weakly than expected in May. Output rose by just 1.8% in May, against a forecast of 5.5%. GDP fell by 25% in March and April, showing there is a long way to go before the economy returns to pre-pandemic levels.
“Closing down large parts of the economy was always going to lead to a sharp fall in GDP,” O’Grady said. “With only a slight gain into May, the danger is that the pandemic could lead to an economic crisis.”
Last week chancellor Rishi Sunak unveiled a £30bn “Plan for Jobs” aimed at supporting, creating, and protecting employment.