The UK government needs to perform a further U-turn and consider an extension of its furlough scheme in specific sectors, say MPs on the Treasury Select Committee.
Mass long-term unemployment and the loss of perfectly viable businesses could be the result if the chancellor and prime minister dug their heels in over ending the furlough scheme on 31 October without any further measures, the committee warned.
In their Challenges of Recovery report the cross-party group of MPs said they did not support a blanket retention of the scheme, but wanted a targeted approach – mirroring Labour’s proposals. They added that the existing furlough scheme was “not effectively targeted” and did not offer value for money.
Shadow chancellor Anneliese Dodds called for a targeted extension to the furlough scheme in a motion put forward by Labour on Wednesday, but the proposal was rejected by the Commons.
Previously, Prime Minister Boris Johnson has said that extending furlough past October would only keep people “in suspended animation”. And chancellor Rishi Sunak has also ruled out any extension, instead delivering a policy that will see firms given £1,000 for every furloughed worker still in employment at the end of January.
The select committee’s chairman, Mel Stride, Conservative MP for Central Devon, said the chancellor “should carefully consider targeted extensions” to the scheme.
He said: “The key will be assisting those businesses who, with additional support, can come through the crisis as sustainable enterprises, rather than focusing on those that will unfortunately just not be viable in the changed post-crisis economy.
“One such challenge is to target assistance effectively at those businesses and individuals who need it. The chancellor should carefully consider targeted extensions to the Coronavirus Job Retention Scheme and explain his conclusions.”
The committee also warned that the Covid-19 crisis risked widening the gender pay gap due to the differences in hours of paid work in lockdown – especially if work patterns are changed permanently.
The MPs said people should be able to reskill, and that small businesses should be able to fully participate in the government’s Kickstart Scheme, which aims to create work placements for young people on universal credit.
The Resolution Foundation and the Federation of Small Businesses (FSB) were among organisations pushing for further measures to support employment. The FSB said with the furlough scheme winding down, “policymakers will need to look closely at measures to stem mass unemployment, including a successor scheme.”
The key will be assisting those businesses who, with additional support, can come through the crisis as sustainable enterprises, rather than focusing on those that will unfortunately just not be viable in the changed post-crisis economy.” – Mel Stride, MP
The Resolution Foundation’s chief executive, Torsten Bell, said of the MPs’ report: “This authoritative account of the economic impact of coronavirus should be required reading for Treasury officials planning the autumn budget.
“The chancellor will need to reconsider his plans to swiftly phase out support given the painful reality that the economic crisis is here to stay.”
The Institute of Directors, meanwhile, welcomed today’s news of economic growth as lockdown restrictions in general lift, but joined those calling for new measures. It stated: “Increased business support around local lockdowns was a welcome step, but the government must be open to extending its flagship schemes. The challenge firms face will only be compounded by the prospect of Brexit-related disruption. The chancellor should use the autumn budget to cut employment costs and encourage investment to provide the economy a much needed shot in the arm.”
Earlier this week Make UK warned that crucial skills would be lost to the UK if the furlough scheme was not extended in some sectors.
Adding to the weight of opinion, former prime minister Gordon Brown told ITV’s Good Morning Britain that the government must avoid disaster this autumn. The UK must ensure, he said, “that we don’t allow a cliff-edge on October 31, we don’t allow 1.5 million more people to be unemployed.
“We do not allow people to suffer and their livelihoods gone forever, with their skills going and capacity in business never to return.”
Brown, chancellor under Tony Blair, also called for the Bank of England to take employment as well as inflation into account when making policy decisions, in a similar manner to the US Federal Reserve. He made the comments while launching the Alliance for Full Employment
He acknowledged that the government had spent billions on rescuing the economy but said it had so far failed to put together a comprehensive plan for recovery. He said measures to help the under-25s were inadequate and compared badly with the more generous scheme Labour had introduced in 2009 when he was prime minister.
“Young people are now facing the worst of times yet the government’s Kickstart youth employment programme will assist only 250,000 of 3.5 million under-25s not in full-time education, and only for six months.”
Brown said Rishi Sunak should continue furlough payments to key sectors of the economy, if necessary supporting part-time work.
Germany, Belgium, Australia and France have all decided to extend or launch new wage support schemes into next year.
A Treasury spokesperson responded to the Treasury Select Committee’s report by stating that by the time the UK scheme closes it would have helped to pay for 9.6 million jobs.
They said: “We are creating new roles for young people with our Kickstart Scheme, creating incentives for training and apprenticeships, and supporting and protecting jobs in the tourism and hospitality sectors through our VAT cut and last month’s Eat Out to Help Out scheme.”
The UK’s unemployment rate has been at 3.9% since the lockdown was introduced. But the Bank of England expects that rate to double to 7.5% by the end of the year when the government-funded support schemes come to an end.