British Government has raised concerns on the cost of furloughing scheme that it is bearing for the companies that have shown signs of no future following their inability to recover from the crisis. Recently, there has been a lot of talking among the business lobbies about the government to extend the furloughing scheme and to provide clarity on how the businesses are supposed to deal with job losses after this state-backed scheme expires at the end of June 2020 as the impact of coronavirus-induced economic downturn is expected to continue beyond the scheme expiry.

In response to all these concerns, Chancellor of the Exchequer Rishi Sunak assured business on Monday that there would be no sudden withdrawal of the scheme but there would be a steady drawdown. He also reiterated that the cost of the programme to the government is huge and that it would not be possible to sustain it for long.

Furloughing Scheme has been one of the most talked about schemes among all the measures that the government has launched to bailout businesses during the coronavirus crisis. So far, nearly 3.6 million furloughed employees have been put under the scheme who are able to remain on the payroll to receive their salary and have the provision to return to work after a furlough. It, however, seems that not all businesses could recover from this black swan event that has made a deep long impact majorly across all the sectors of the economy.

The scheme was rolled out by the government in the last week of March to coincide with the lockdown for an initial March to May phase. But, it’s worth noting that as the UK government announced the extension of coronavirus lockdown for further three weeks, it also decided to extend the furloughing scheme for a month to end in June. Under this scheme, the government pays the 80 percent of the salaries of workers up to the maximum of £2,500 per month to protect their jobs from the mass layoffs that the companies are compelled to adopt due to massive revenue loss looming fear of business collapse.

But the withdrawal of furloughing scheme seems as critical to the British economy as its rolling out was to rescue the country out of the current crisis. Unemployment is the biggest threat that an economies usually face in the situations like this. If the number of jobless people in the country rises, its gets extremely difficult for the country to level up in the recovery phase. The government knows this fact and hence when it first started to roll out its stimulus measures in the wake of the pandemic it has made employment its ‘focal point’. The £350 billion Business Interruption Loan Scheme that the government had announced after the Furloughing scheme was announced came with specific instructions that the companies availing the benefits of the scheme would use the sums to pay the salaries of staff other essential expenses while the business activity in the country remains subdued due to the pandemic. Again when it was found that several of the companies would not be able to avail of the scheme due to various reasons, the government decided to extend the furloughing scheme to the large companies as well. In effect, the government took all possible measures to protect as many jobs in the country as was possible within the scope of the tools available at its disposal. The benefits of the scheme though were clearly visible, as nearly 6.3 million people came directly under the benefit of the scheme and did not show up in the lines of people applying for unemployment benefits like universal credit.

Should the line of people applying for unemployment benefits extend drastically at any point of time it could be disastrous for the British economy. The government actively adopted measures to ensure such a situation not arises. It is highly likely that the business would not return to pre-March levels anytime soon, which in turn, has caused a serious risk of unemployment. In such a scenario, withdrawal of the furloughing scheme could put several furloughed employees out of work for a long period of time. There is still another major risk in withdrawing the scheme that many of the businesses which have furloughed their staffs are not expected to make it through the lockdown period and may go bust.

There have been suggestions coming in from several groups that the government should explore the possibility of relocating employees from the sectors that are going to contract to the sectors that have shown early signs of recovery and have the potential to grow in the near future. These suggestions, however, don’t seem to have a strong foundation as the industries which are expected to shrink or are expected to grow are already having a large pool of human resources who have been sitting out under the furloughing scheme with low hopes of being employed back. Airlines, hospitality and tourism are the three major industries that have been hardest hit because of the pandemic and would require the maximum support of the government to be able to get up and running again.

The pandemic is still gaining strength in the United Kingdom despite the country making an all out effort to contain it through strict lockdown measures. Even if the government were to withdraw the lockdown, life is not expected to get back to normal like it was a few months back. It will be a long time before the economic conditions will be back to where they were before the outbreak of coronavirus. The burden of the number of unemployed people in the country has been increasing exponentially despite the government taking all possible measures to deal with the situation. The market believes that the government could possibly look at providing selective stimulus packages to industries who are expected to be worst hit in order to preserve the jobs of people working there until the economy could bounce back.



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