Summary

• The government has emphasised that it does not intend to extend the furlough scheme that is due to end by 31 October 2020
• Many companies are expected to begin additional redundancies and job cuts with the scheme ending
• Several experts view that extending the scheme would delay the problems of the job market which is reeling with unemployment and add newer issues
• NIESR said that besides hurting in the short-term, unemployment could leave long-lasting impact on people who lose their jobs
• While BoE expects unemployment numbers to reach 2.5 million because of ending the furlough scheme, the NIESR predicts around 3.5 million

The government has reiterated that it does not intend to extend the furlough scheme beyond 31 October 2020. From the start of September 2020, the companies using the scheme are required to contribute 10 per cent towards their staff salary. Since July 2020, several businesses started planning to unwind the government's Coronavirus Job Retention Scheme or furlough programme. But it does not make axing the jobs any easier. Many companies are expected to begin additional redundancies and job cuts with the scheme ending. This is the reason several experts are predicting a massive rise in unemployment and there are increased calls to extend the scheme.

Heathrow Airport to cut 1200 jobs

On 2 September 2020, Heathrow Airport Limited, the UK’s biggest airport, announced that it is planning to cut up to 25 per cent of its frontline roles unless it agrees on a changed deal with the trade unions. Heathrow Airport intimated the union officials regarding the issuance of a formal Section 188 notice, leading to a 45-day consultation period that would result in compulsory job losses. The consultation process is likely to include up to 4,700 of the airport's engineers and security staff, among others. It is expected that approximately 1,200, of these roles could be cut in the absence of an agreement that included considerable cuts in payments, besides modifications in benefits such as lower pension amounts. It is to be informed that more than 4,000 employees of Heathrow have been furloughed. The government’s scheme that has started winding down is expected to end by October 2020.

Expert’s views on ending of the furlough scheme

Given the tough decisions that companies across the sectors are taking to axe jobs amid the recovery process from the coronavirus-led crisis, it would sound appealing to many that the furlough scheme would be extended beyond October 2020. However, several experts are of the opinion that extending the scheme would only delay the problems of the job market which is reeling with unemployment and add newer issues. There are other lens of looking at the situation as various arguments have been raised that mentioned many people who are employed or have the jobs are actually not doing it.

The National Institute of Economic and Social Research (NIESR) argued that it is widely understood that in addition to being hurting in the short-term, unemployment could leave long-lasting impact on people who lose their jobs. By losing jobs, worker’s skill sets are likely to be impacted as they would no longer be job ready or employable when next opportunity would come to them. This could potentially result in further rise in unemployment or lower salaries when they are recruited in the future.

This understanding made sense to many and formed the initial validation for the government to start the scheme. The triggering factors were the lockdown imposed to curb the spread of the coronavirus that left people with either no or sufficient work and the companies struggled to pay the salaries. And, the scheme was seen as a way to save jobs by allowing the businesses to retain their employees.

The furlough scheme was launched as a temporary measure and for a shorter period of time. It is debated that if it continues for a long time, it would have different consequences. A self-motivated economic scenario is bound to notice job losses, job movements, and avenues for creating newer jobs. In crisis times, the job market registers more vibrant demand-supply patterns because of incorporation of technology or change in consumer choices.

Also read: Future of UK Energy suppliers as the furlough scheme ends, Focus on Centrica

Also read: Furloughing Expected To Cost The British Exchequer Three Times More Than Originally Envisaged

Some experts emphasised that continuing the furlough scheme would restrain the movement of workers from one company to another or from one industry to another. It has been seen that in usual times hospitality and retail and wholesale segments, that recoded largest furloughed workers during the pandemic, have high turnover rates in usual times. In these two sectors, almost one-third of the employees either leaves or changes their jobs on an annual basis.

Secondly, given the uncertain economic scenario and rapidly changing consumer behavior, it is likely that when the pandemic decimates, the furlough scheme would keep paying for the jobs that would no longer be required. In a post pandemic situation, it is important to gaze the validity or continuity of a particular job, and those at risk need to start looking for relevant jobs from now on. Similar to the fact that remaining unemployed for a longer time could hamper the skill sets of the employees, long-term inactivity by being furloughed, could also have detrimental effects. Required skill sets and being productive in a job role has significant costs attached to it.

Effect on unemployment numbers

It is widely believed that ending the furlough would scale up the unemployment numbers. There are different forecasts suggesting the proportionate rise in unemployment numbers. While the UK’s apex bank, the Bank of England (BoE) has put a conservative analysis expecting 2.5 million, the NIESR predicted around three and a half million. According to the NIESR, in case the furlough scheme lasts half way till 2021, it would associate a cost of around £10 billion. The institute believed that the scheme would pay for itself over the long-term.

Also read: Government Urged To Support People Left Out Of The Furlough Scheme

Also read: With A Gloomy Economic Outlook, Britain Sees Furlough And Business Loan Bills Rising

Some possible solutions for way ahead

In the ongoing fight against the pandemic and uncertainty regarding the pace of economic recovery, it is vital to assist the people who have lost their jobs by supporting their income. In order to increase the consumer demand and confidence, universal credit schemes would be useful to decrease their sufferings and reduce poverty. It is additionally crucial to assist these people in getting new jobs. The workforce that is not brought back from the furlough scheme could be encouraged to start a new business by providing some amount for retraining.

The pandemic must be seen as an opportunity to create new job avenues and people need to be meaningfully employed. It might come with a cost but the public sector, education, and health sectors have prospects to be built back and built stronger. They need to come forward as job creators, since the private sector might not be in a position to create new jobs in a big way. The cost incurred could be similar to extending the furlough scheme itself. It would save the economy from the long-lasting impacts of rise in unemployment and fading of skill sets.

Conclusion

The coronavirus-led economic crisis hit the economy suddenly when there was no time for preparation and public health was the priority. Now, almost eight months into the pandemic, both the government and businesses have realised that there needs to have a better balance between life and livelihood to expedite the economic recovery process. In any crisis situation, the economic and social impact on human resources needs to be dealt carefully. It is critical to formulate policies and execute them in a right manner to bring desired results. At a time when the country is under a deep recession and the Covid-19 infections are rising, it remains to be seen how the governments, businesses and employees plan ahead to deal with the end of the furlough scheme.