The Office for National Statistics (ONS) released its latest unemployment figures this week. On the surface whilst not good, they were not alarmingly bad either. Unemployment is now standing at 4.1% with redundancies 48,000 up on the previous quarter. However the underlying trends are in the wrong direction and will get worse as the furlough scheme unwinds. Particularly vulnerable it seems are two groups at opposite ends of the age spectrum – those just starting work and those at around official retirement age – and the self-employed plus part-time workers. The numbers are not yet at the levels of the 2008 financial crisis, and it is informative to look at what happened then. Although the crisis started in 2008 the peak of unemployment was in the period between 2009-12 and only in 2015 did it start to drop again significantly. Whether Covid will be similar or not remains to be seen as the current crisis is a situation unlike any other.
Chancellor Rishi Sunak continues to insist that the furlough scheme must come to an end although there has been further pressure this week from all sides of the political spectrum for him to extend it. The Unite union warned that the 'redundancy floodgates' are about to open. With 45 days to go until the end of furlough - the amount of notice that needs to be given when making employees redundant – we should find out soon whether these claims are about to materialise into reality or not. There has been though a subtle change in the Chancellor’s messaging. Whilst insisting that an 'as is' extension of the furlough scheme is not viable he has not quite closed the door to ongoing support on a more targeted basis.
Regardless of party politics, there is a difficult balance to strike here. For one thing there is a need to assess carefully whether or not existing businesses are going to be viable after the pandemic, whenever that might be. For example High Street shops were already facing an uphill battle even before the pandemic hit and the trend towards online retailing has merely been accelerated by it. Similarly, airlines have laid off tens of thousands already which might in this case lessen the argument for extending furloughing there as the industry has already seemingly decided for itself that a continuation of 'business as usual' post-pandemic is simply not going to happen. But the burning question is whether the government would be better placed targeting support on industries which have a seemingly promising long-term future, such as some tech businesses, rather than a blanket support scheme regardless of a business’s prospects.
There are other issues with furlough too. I should imagine that few would argue that the furlough scheme was not a very good idea when it was first introduced. It was a much-needed safety blanket to support millions of people who through no fault of their own were suddenly and unexpectedly faced with massive uncertainty about their future. However, the longer that furlough goes on and individuals lose touch with the regime of work – don’t forget that up until July employees who were furloughed could not do any work for their employers though employees who are on part-time furlough may now do so if certain conditions are met – the harder it will be for some to get back into their previous pattern of work which even then might not be possible because for example they are working from home. Also mothballing employees, which is essentially what long-term furlough is, has unforeseen impacts on the labour market. In a seemingly ironic way by protecting employees you make it harder for new labour markets to emerge which could have a major negative impact on younger people or the self-employed trying to enter employment for the first time; two groups who already suffering disproportionately badly from the pandemic. All of which makes the Chancellor’s job an unenviable one as he tries to find the right balance between protecting employees and keeping an eye on the longer-term picture for the UK economy.
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Wayne Bartlett is an author for accountingcpd. To see his courses, click here.