Temporary, timely and targeted. Furlough has proved to be just one of these

Larry Elliott Economics editor
·3-min read
<span>Photograph: Reuters</span>
Photograph: Reuters

Temporary, timely and targeted. That was how Rishi Sunak described the government’s strategy for coping with the impact of Covid-19 when he gave his budget speech on 11 March.

Less than two weeks later the UK was in lockdown and the chancellor sought to deliver on his pledge with the Treasury’s job retention scheme, or the furlough as it has become known.

The JRS was certainly timely. Much of the economy had been closed on orders of the government in late March and without support from the state there would have been an immediate tidal wave of redundancies and business failures.

Even thinktanks with impeccable free-market credentials recognised the need for the furlough. The idea was simple: if the state was stopping people from working it had to spare them from penury. With a nod to Germany’s Kurzarbeit short-time working scheme, Sunak said he would pay 80% of the wages – up to £2,500 a month – of anybody unable to work.

At its peak there were 8.9 million people on furlough, although take-up varied by sector and by age group. Almost four out of five (77%) of hospitality workers were furloughed at some point – 10 times the rate for finance. More than half of the under-25s had been furloughed or lost their jobs by June, according to the Resolution Foundation thinktank, compared with less than a third for almost all other ages groups.

This was not a targeted scheme. There was no system for checking whether firms needed to furlough workers or not and, according to the Institute for Government thinktank, there are still more than 1 million workers on the JRS in sectors such as manufacturing, construction and professional services which are unaffected by social distancing and where output has recovered.

But in the early stages of the crisis, Sunak decided that throwing a blanket of support over the economy quickly was more important than trying to come up with a finely honed scheme that would try to avoid wasting a penny of taxpayers’ money.

The original idea was the JRS would be a temporary expedient – a three-month bridge that would see the country through to better times. Hopes that the scheme could be wound up before the longest day rapidly ran into the reality of what lockdown entailed for the economy – a 25% drop in output and the permanent shuttering of some sectors, such as live events.

Related: UK furloughed workers: tell us about your experiences

Even now, the last day of the JRS on Halloween merely represents the point when furlough mark 1 is replaced by furlough mark 2, because a second wave of infections has made a continuation of extensive wage subsidies inevitable.

From 1 November, the JRS will be replaced by the job support scheme, which is a lot more generous than Sunak originally planned when he first announced it in September. Someone working one day a week will be receiving two-thirds of their normal wage.

France and Germany have already announced plans for a two-year furlough, and bit by bit Sunak is following their example. The UK furlough has not prevented the sharpest rise in unemployment in a decade, with 9% of those furloughed losing their jobs.

It has, at a cost of £40bn so far, prevented a return to the dole queues of the 1980s. For now anyway.