(Bloomberg) --
The U.K. would continue to pay workers’ wages to protect jobs until the end of September, under plans being considered by officials, people familiar with the matter said.
Among the options ministers are weighing up is allowing workers on the furlough program to return to their jobs part-time, with employers and the government splitting salary payments, the people said.
The program currently pays 80% of furloughed workers’ wages but this would be gradually tapered so the government support is progressively withdrawn over the months ahead, according to four people who declined to be identified discussing plans that have yet to be finalized. Three people said the extension may last through September.
The program is important because the state is using it to support millions of people and hundreds of thousands of employers in an effort to ensure that as few jobs as possible are lost during the pandemic. But it also comes at a potential cost of tens of billions of pounds, and Chancellor of the Exchequer Rishi Sunak is looking at ways to ease the burden on the state coffers.
Furlough is “the single most important piece of support for cash flow and avoiding mass redundancies and job losses,” British Chambers of Commerce Director General Adam Marshall said in an interview. “It’s the piece of the jigsaw that must be absolutely right for the next stage. If the support were to be withdrawn too early, then all of the money that has been spent – taxpayers’ money – will have been in vain, because you will see mass redundancies.”
How Sunak’s $131 Billion Virus Aid Package Is Being Rolled Out
Under the program announced by Sunak in March, the state pays 80% of a furloughed employee’s wage so long as the link is retained to their job. The Treasury last week said the program is supporting 6.3 million workers with 800,000 employers.
The scheme is due to run until the end of June -- a month longer than originally planned -- and any further extension will add to a bill that the Office for Budget Responsibility already puts at around 49 billion pounds ($60 billion).
No Cliff Edge
Sunak last week promised to ease the program gradually to ensure no “cliff-edge” for employers and their workers. Prime Minister Boris Johnson on Monday told the House of Commons that the chancellor will provide an update on the program on Tuesday.
“The Coronavirus Job Retention Scheme is protecting jobs and businesses through this crisis and has already supported millions of workers across the U.K.,” the Treasury said on Monday in a statement. “Future decisions around the scheme will take into account the wider context of the measures in place, as well as the public health response. We have been clear there will be no cliff edge and people will be eased back into work in a measured way.”
The opposition Labour Party said the program should be reformed to make it more flexible and to ensure companies using it can’t also pay out dividends.
“This is a chance for ministers to improve the scheme -– particularly with a move towards it applying to short-time working, but also a greater degree of conditionality so that the scheme can only be used to pay staff and not dividends,” Bridget Phillipson, a member of Labour’s Treasury team, said in an interview.
‘Concerned’
Phillipson also said her party is “concerned” about the impact of cutting the level of payments from 80%. “What we don’t want to see is the rug pulled out from so many families who would then be pushed into poverty through no fault of their own,” she said.
Marshall of the BRC said the program should be around for “as long as is necessary,” with “no arbitrary end-date.” He also said there needs to be flexibility to allow workers to return part-time, with employers and government splitting wages -- a call supported by other industry groups too.
“What our members want is flexibility in the furlough system to allow a proportionate and sensible return to work,” Jonathan Geldart, director general of the Institute of Directors, said in an interview. “A part-time furlough would be very welcome. It’s all about managing the return.”
Stephen Phipson, chief executive of the MakeUK manufacturing lobby group, said that a “range of policies,” including continuation of the furlough program, will be needed to get Britons back to work.
Turbulent Flight
“There is no silver bullet to any of this and government and industry is going to have to be adaptive, creative and flexible through what is likely to be a bumpy and turbulent flight into the future,” he said.
Economists said extending the furlough scheme will be necessary to avoid large-scale unemployment if parts of the economy remain shuttered beyond June.
“The one thing the Chancellor has shown in his so far brief stint is flexibility, said Sanjay Raja, a U.K. economist at Deutsche Bank AG in London. “So I would expect the furlough scheme to build in some flexibility across duration and scope. Still, unlike the initial program, any extension to the scheme will not be a blanket check to the private sector.”
Carsten Jung, a former Bank of England official and now a senior economist at the Institute for Public Policy Research’s Centre for Economic Justice, said the risk is moving too fast in winding down the program, rather than too slowly.
Unintended Rupture
“An across-the-board rolling back of the scheme risks severing ties between firms and employees which will hurt the recovery,” he said. “We can afford to keep the scheme in place in order to avoid such an unintended rupture.”
BOE Governor Andrew Bailey said last week that the success of the furloughing plan was a major reason behind its projections for a relatively rapid rebound in growth in 2021. Under the bank’s scenario, the support was gradually withdrawn from June, before ending by the end of the third quarter.
“One of the reasons we don’t get long-term damage is because we think particularly the furloughing scheme is working and it will do its job,” Bailey said in a Bloomberg TV interview. “The job it will do is to enable people to come back into the labor force, back into full-time work, productive work much more quickly and that’ll be a real success.”
©2020 Bloomberg L.P.
RECOMMENDED FOR YOU
POPULAR