Sunak may use new ways to save jobs once the furlough scheme ends

Summary

• Treasury could use innovative ways like targeted extension of the scheme, subsidies, and universal credit, among other options
• Government is under continued pressure to contain its fiscal deficit
• However, OECD has suggested the governments across the world to continue with their public borrowing programs and support the ailing businesses and people grappling with job losses

Rishi Sunak, Chancellor, UK Treasury has clarified time and again that the government’s furlough scheme will end in October 2020. That’s nothing new. However, what is new is that he has recently said that he might come up with some other creative ways to save jobs.

What Sunak has already done is that he launched the £2 billion kickstart scheme that would promote job placements for young workers aged below 25 years. He had also announced that a bonus worth 1000 pounds per worker would be paid to the employers for retaining the furloughed employees, once the coronavirus job retention scheme (commonly known as the furlough scheme) expires.

So, let us take a closer look at some of the ‘creative’ ways that he might be looking at announcing to keep the Britons employed.

Sector-specific extension

MPs have requested the government to extend the furlough scheme for the staff of sectors that are hardest hit. For instance, hospitality is one such gravely impacted sector. UK Hospitality, the sector’s national industry association, has cautioned that close to 0.9 million jobs could be lost in the sector in case the furlough scheme is not extended. There is a renewed anxiety over the recovery of the sector with the recent introduction of the ‘Rule of Six’.

The UK hospitality sector employs a total of 3 million people and is the third largest employer for the private sector in the nation.

Subsidy scheme

As per the suggestions of the Trades Union Congress (TUC), the national union of employees representing close to 5.5 million workers, the UK government should roll out a subsidy scheme. TUC suggested providing a 70 per cent state subsidy to employers for paying staff salaries in case they can get back their staff to work for a minimal portion of their usual working hours. Companies will contribute rest of the salary bill, so it would cost the government less than the furlough scheme. UK government might be contemplating on introducing this short-work scheme.

Universal credit

At the onset of the pandemic, the treasury had raised the universal credit by £1000 until the end of March 2021. It might consider extending it further in line with the suggestions of the Resolution Foundation, a think tank based out of London which focuses on improving standards of living for the households with low to medium income levels.

The Foundation had estimated that close to 6 million families would be impacted if the raised universal credit is withdrawn from 1 April 2021.

Create government jobs

Another option is to increase the hiring on the public sector front. Government could come up with new vacancies in the public departments of healthcare, law & order, education, and administration, apart from others. In fact, the TUC has also urged the government to generate close to new 0.6 million public sector roles across the economy.

In addition to these, the government might also be mulling over other options like lowering the existing business rates, expanding outlay for the kickstart scheme, raising demand for goods and services, or creating more part-time jobs.

It is pertinent to note that the British economy is undergoing one its toughest times, with the public borrowing already having crossed a high level of £2 trillion, according to the latest government statistics.

On one hand, the government is under pressure to keep a check on its expenses and raise its sources of revenue by upping the taxes. On the other hand, the struggling businesses still need to be supported as many businesses continue to be in the red and might require additional financial support. At the same time, a fear of mass unemployment is looming on the horizon that could de-stabalise the society at large. The Bank of England has forecasted that the unemployment rate in Britain could go up to 7.5 per cent by the end of 2020.

Key details of the furlough scheme (on 31 July, 2020)

(Source: Government of UK)

Under the furlough scheme, one of the highest amounts was claimed by the wholesale and retail trade sector worth £6071 million while the accommodation and food services sector claimed funds worth £4,773 million by 31 July 2020. Manufacturing sector made furlough claims worth £3840 million while construction sector claimed £2931 million under the scheme. The collective amount claimed under the scheme was more than £30 billion.

OECD advises public spending

The Organisation for Economic Co-operation and Development (OECD) has recently come out with a report titled the quarterly health check of the global economy. The report said that governments across the world should continue with their public borrowing programs and support the ailing businesses and people struggling with job losses.

OECD added that public spending is required on a sustained basis for the global economic revival.

Any fiscal tightening through hike in taxes etc. could be counter-productive and should therefore be avoided during this fragile period of recovery, hinted the international economic organisation.

Sunak had recently announced that he is not ruling out tax hikes in the forthcoming November 2020 budget.

In the meantime, Keir Starmer, the Labour leader has also requested the treasury to finance growth of businesses which need support such as aviation, retail, and hospitality while it is ending the furlough scheme. This furlough scheme is paying for up to 80 per cent of salaries of the furloughed employees, with a cap of £2,500 per month.

Finally, unemployment fears are mounting as the days are coming closer for end of the furlough scheme that expires on 31 October 2020. Many sectors might still require continued support to keep paying their staff salaries. Government is aware of these concerns as Rishi Sunak, Chancellor, UK treasury recently said that he is looking at creative ways to support jobs across the economy. Some options that he might be exploring are sector-specific extension, subsidy schemes, universal credit, and public sector jobs, among others. It will be interesting to see how he balances out the government budget during these never-seen-before testing times of the coronavirus pandemic.