Ian McConnell: Alternative to coronavirus furlough scheme does not bear thinking about as spectre of mass unemployment looms

Of course, just how crucial this scheme is to warding off a much-greater economic collapse and untold misery is clear in any case from Chancellor Rishi Sunak’s own observation on Tuesday, when he announced an extension of the programme, that it had so far protected around 7.5 million jobs.

Before the coronavirus tragedy unfolded, it would have been difficult to conceive of the notion of any government scheme saving millions of jobs. And that is even having been through the utterly grim 2008/09 global financial crisis and associated recession – a calamity which saw the then Labour Government having to rescue institutions including Royal Bank of Scotland and throw the weight of the state behind the whole banking sector.

Of course, minimising the death toll from coronavirus absolutely rightly remains the priority in the UK and other countries around the world.

The scale of the economic slump triggered by lockdown measures aimed at slowing the spread of Covid-19 is already plain, with large parts of the economy shut down and others reduced dramatically.

Official figures published this week show UK economic output plummeted by 5.8 per cent month-on-month in March. Gross domestic product over the first quarter was down 2% on the preceding three months. The drop in the second quarter will be much, much greater, given it was only in late March that the UK Government implemented full lockdown.

The UK Government deserves credit for its implementation of the coronavirus job retention scheme, which was unveiled just days before full lockdown was announced on March 23. This pays 80 per cent of the wages and salaries of furloughed workers up to £2,500 a month.

This scheme has been crucial in warding off mass redundancies by employers which have found they are unable to operate, or have otherwise seen their business affected, as a result of the coronavirus crisis and measures to slow the spread of Covid-19.

Companies of all sizes, across a raft of sectors, are having to lean on the scheme to preserve jobs in these most grim of times.

Of course, the scheme makes perfect sense from the perspective of the Government as well, in terms of preserving as much of the supply side of the economy as possible by minimising business failures and supporting demand by making sure furloughed employees still have money in their pockets.

Mitigating the financial impact on households of this crisis by protecting millions of jobs and pulling out all the stops to avoid businesses going bust through no fault of their own will be crucial to giving the UK the best chance in terms of the speed and strength of the eventual recovery.

In this sense, “a stitch in time saves nine” seems like an apposite characterisation of the coronavirus job retention scheme. This is all about damage-limitation.

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The furlough scheme is, not surprisingly, costing billions of pounds each month.

By the time we are through the worst of this, it will have cost tens of billions of pounds.

However, the Conservatives must have known this when they launched the scheme. Things must have turned out as expected on this front. And, while tens of billions of pounds is a huge amount of money, we should put it in the context of a surge in public sector net debt from £1 trillion when the Tories came to power in 2010 to £1.8 trillion before the coronavirus pandemic struck.

Nearly two months on from its launch, the coronavirus job retention scheme is more important than ever. And it will continue to be crucial for months to come.

In this context, a comment last week from a senior UK Government source, claiming that people were “addicted” to the scheme, rang alarm bells.

The source was quoted as saying: “People are addicted to the scheme. We’re not talking about a cliff-edge but we have to get people back to work.”

Use of this language in the context of furloughed workers is outrageous, as noted in this column a week ago. It is difficult to see how it can be viewed as anything other than insulting to millions of people who have been furloughed and to the businesses reliant on this support in these unprecedented times.

The remarks understandably triggered an anxious few days for the country at large, particularly for those reliant on the furlough scheme but also for many others who can see how crucial this support is to staving off an even-more-dramatic economic collapse and hit to living standards.

Who knows if there was some internal wrangling within the Conservatives, a party not best-known for big state intervention to help out those most in need, as more than a decade of savage welfare cuts shows.

The days following this “addicted” remark saw a raft of pleas from the business community, and others, not to abandon the furlough scheme, amid the suggestion that the programme could be wound down from July.

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Thankfully, whatever was or was not going on in the background, common sense appears to have prevailed. The Chancellor even said that the job losses that had occurred so far were “heartbreaking” for him as he extended the scheme to October.

He made it plain there would be no changes to the scheme before the end of July.

He raised the possibility of employers being asked to foot part of the bill between August and October, although details of this have yet to be fleshed out.

Mr Sunak’s extension of the scheme is a huge relief in these awful times. However, there are big unanswered questions and major issues of practicality that will have to be addressed as the UK Government looks at any adaptation it might make to the scheme between August and October.

Some employers which are able to do so are currently supplementing what furloughed employees receive under the Government scheme by topping up their earnings to a level closer to what they would have been entitled to had they been working. Such behaviour is to be welcomed, and should in the long run foster employee loyalty.

However, many employers have seen their revenues disappear and large numbers of them would not have had huge reserves. Small businesses are likely to be particularly under pressure in this regard, although larger firms may also not have their troubles to seek, including many operating in sectors where trading has been tough. We should remember in this regard that the UK economy, weighed down by years of austerity and the Conservatives’ Brexit folly, was not in great shape before the coronavirus pandemic hit.

There is also, going forward, the issue of sectors that will be among the last to reopen. It may be many months before they can get back to normality.

It may well be that the coronavirus job retention scheme has to be extended beyond October. Time will tell whether this is appropriate – this will be dictated by coronavirus infection rates.

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The tourism sector looks to face particular challenges, given its seasonality.

Marc Crothall, chief executive of the Scottish Tourism Alliance, said this week: “There are a great many businesses that will not survive beyond October as it will simply not be viable for them to start trading again until the spring.”

Hopefully the UK and Scottish governments will be able to continue to support the tourism sector, and others with particular problems, through the difficult times ahead.

In terms of the overall economy, there is a strong argument, given it has worked so far, to avoid tinkering too much with the basic structure of the furlough scheme in the August to October period, and indeed beyond if it is still needed.

It would of course make sense to use the scheme to facilitate a return to part-time working, until such times as companies are able to return employees to full hours, where this works for businesses. And businesses can pay for the part-time work of employees. Some employers may well be able to contribute to the bill for furloughed employees in a more general sense but the practicalities will require careful consideration and the overall financial support to affected staff should not be reduced.

We should bear in mind that, as the economy reopens, on the basis that we can avoid a second wave of Covid-19 infection, the cost of the furlough scheme will reduce week by week.

The key consideration is the scheme has worked very well so far. So the UK Government must not risk a huge wave of redundancies by making it unworkable for some employers by putting pressure on them to put up money they do not have.

The last thing we need is for the economy to unravel to an even-greater extent. Continuing to take all possible steps now to limit redundancies will be much less costly in the long run than having to deal with the horrors of mass unemployment.