THE huge challenges facing Scotland’s households, businesses and economy have been underlined this week in an analysis of official furlough statistics by the Federation of Small Businesses.

The FSB flagged the danger signals as it highlighted provisional figures published last week by HM Revenue & Customs showing that, in Scotland, the number of employments on furlough was 327,100 at March 31. While this represented a welcome drop from 368,400 on February 28, the end-March number is one that should still prompt policy-makers to sit up and take note.

The same situation, of course, applies across the UK. The provisional HMRC figures show there were 4.2 million employments on furlough in the UK as a whole at March 31. While the numbers in food and accommodation services stand out in terms of scale, at more than one million, there are substantial totals across a raft of sectors, including construction and manufacturing as well as retail.

As the FSB points out in its Scottish analysis, the HMRC furlough numbers are at a point “before the most severe restrictions were wound down”.

And it is to be hoped that the reopening of the likes of non-essential retail and much of the hospitality sector across the UK in recent weeks will enable continuing substantial reductions in the furlough numbers.

However, it would be naïve to think reopening will be enough in itself to ward off impending woe as Chancellor Rishi Sunak’s planned ending of the coronavirus job retention scheme in September looms.

And, of course, before then, Mr Sunak is asking for a greater furlough scheme contribution from employers in a tapered approach from July, which will increase the pressure on many businesses. While UK taxpayers are supporting the incomes of furloughed workers through the job retention scheme, employers are, of course, currently picking up major costs for these employees in terms of national insurance and pension contributions.

The continuing scale of the challenges in the UK labour market is evident in figures published yesterday by the Office for National Statistics covering a period to early May, showing 11 per cent of the workforce of all UK businesses still on furlough, albeit down slightly from 13% in mid-April. The 11% figure equates to around 2.8 million people. The 13% figure amounts to around 3.3 million people. So there has been a big and welcome drop in recent weeks – but 2.8 million is a very big number.

Employers which have retained staff on furlough, rather than making people unemployed, deserve great credit for bearing the expense of doing so. Of course, as well as doing the right thing by their staff and making their own contribution to mitigating overall unemployment woe in the UK, they will hopefully also benefit over the longer term from retaining crucial experience. Conversely, those employers which could have afforded to retain staff on furlough but preferred instead to cut costs by axing these jobs amid the pandemic should reflect on their lamentable behaviour. Some business owners and bosses who had to cut jobs might have had no choice as they struggled to keep their firms afloat, but many, especially those in bigger companies, would have had an option, and they will know who they are.

Undoubtedly, the coronavirus job retention scheme has played a huge part in mitigating the immediate labour market fall-out from the pandemic, although it is highly unfortunate that Mr Sunak’s extraordinary stubbornness with his repeated refusals to extend the scheme last year will have cost many people their livelihoods at the worst of times. Of course, Mr Sunak had to U-turn on these refusals and extend the scheme as reality dawned, but he did so very tardily indeed.

It is crucial to recognise that UK claimant-count unemployment has more than doubled from 1.25 million in March last year to 2.67 million this March.

And a very important determinant of employment in coming months and the longer term will be the extent to which the furlough situation can be unwound without a cliff-edge scenario triggering a sudden further jump in unemployment.

It was heartening to see the Bank of England last week reduce its forecast peak for UK unemployment on the International Labour Organisation measure significantly. That said, it is important to remember that, even with this more upbeat outlook, the Bank is projecting the unemployment rate will get worse before it gets better.

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The Bank of England cut its forecast of the peak ILO unemployment rate to slightly less than 5.5%, anticipating this will occur in the third quarter of this year, as it raised its 2021 growth forecast from 5% to 7.25%. ILO unemployment was 4.9% in the December to February period, having jumped from about 4% at the onset of the pandemic.

The Old Lady of Threadneedle Street now forecasts that ILO unemployment will average 5% this year, having cut this projection significantly from 6.5% in its February predictions.

However, we must bear in mind that this still represents a deterioration from here. And we ignore at our peril that grim figure for people claiming unemployment-related benefits.

There is much at stake here, not just for the economy but crucially also for society and people’s livelihoods and mental health.

In this context, the focus on the huge numbers of people still on furlough from the FSB is an important contribution in terms of raising awareness of this massive issue.

The FSB noted Glasgow had more furloughed employments than any other Scottish local authority area, with a total of 39,500, declaring this was “perhaps unsurprising as the country’s most populous council area”.

It added that Glasgow was “closely followed” by Edinburgh, with 35,400 employments on furlough at March 31, and then Fife, with a total of 19,700, “broadly matching the population shares of these areas”.

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And the FSB highlighted the fact that the Highland, and Perth and Kinross council areas had the joint-highest percentage share of workers furloughed in Scotland, with 17% in this position, followed by South Ayrshire, on 16%.

It noted that, across Scotland, 14% or around one in seven eligible workers were being supported by the coronavirus job retention scheme at March 31.

The FSB’s policy chair for Scotland, Andrew McRae, declared the furlough figures north of the Border “show the great challenge Scotland has on [the] horizon”.

He added: “While many businesses are already bringing back workers, it looks unlikely that this will be the story across all sectors and industries. The recovery isn’t assured just because businesses can reopen their doors.”

Mr McRae called on the Scottish Government to “give workers and firms the tools to adapt to the world changed by the crisis”.

He added: “That means the SNP delivering on their manifesto commitment for new grants for firms to help them build their digital capabilities. Incentives to help firms recruit must deliver for firms no matter their size or location. In addition, we must see smarter programmes to help more workers develop the skills that’ll help power the economic recovery.”

Mr McRae makes important points here on policy.

And the FSB noted that, after the financial crash of 2008, nine out of ten unemployed people who re-joined the workforce did so by being recruited by a small business or by setting one up.

While the Scottish Government must do all it can to address the huge labour market and economic challenge, what will be absolutely crucial in coming weeks and months is that Mr Sunak keeps an open mind on the furlough scheme.

The data should be analysed very carefully, and it may well be that the coronavirus job retention scheme needs to be extended beyond September, at least for certain sectors unable to reopen or to get back quickly enough to any level of normality. Mr Sunak should also contemplate whether his planned increase in employers’ furlough contributions from July could cause a spike in unemployment, and abandon this proposed rise if necessary.

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As the furlough numbers hopefully drop sharply, the cost of the scheme will naturally continue to reduce steeply in line with this. And the programme will obviously be far less expensive in coming months than at the points of the strictest coronavirus-related restrictions.

While further support for businesses and individuals hit hard by the coronavirus crisis will be required through the Scottish Government, money will have to continue to be put up by the Johnson administration, given it has the big tax-raising powers throughout the UK.

International vaccine success means there is an end in sight. At this point, it is crucial the UK Government ensures the necessary support is in place to minimise further dislocation as we get back to normal. It will of course be to the longer-term benefit not only of households, businesses and the economy but also ultimately of the public finances if unemployment and the loss of supply-side capacity can be minimised and growth can be maximised.

The challenges are huge but much of what must be done is common sense.