Furlough Ends With U.K. Jobs Market Facing a Bleak Winter

The furlough program deployed by U.K. Chancellor of the Exchequer Rishi Sunak to avert mass job losses comes to an end today as a resurgence of coronavirus leaves the economy vulnerable to another shock.

At their height, government wage subsidies protected almost 9 million jobs and the cost has been vast -- over 40 billion pounds ($52 billion) at the last count. They prevented a spike in joblessness as the economy shut down in the early months of the pandemic.

But from Nov. 1, the Job Retention Scheme, as furlough is called, will be replaced by a Job Support Scheme that asks firms and workers to bear more of the cost. With Prime Minister Boris Johnson seriously considering another national lockdown, there are fears that hundreds of thousands of jobs could be axed over the winter.

The prospect of further hardship is likely to fuel calls for more government spending and borrowing to boost employment, lift welfare support and retrain people in the hardest-hit sectors.

Furlough Ends With U.K. Jobs Market Facing a Bleak Winter

The new support program unveiled last week requires employees to work at least 20% of their hours to receive aid, and their firms are on the hook to make a 5% contribution for unworked time. While that’s less onerous than Sunak initially proposed, it’s a problem for companies such as Savvy Hotel Group, where many staff currently on the books are getting almost no work.

“I can’t just make up hours for them to pay them even just 10 hours work when I haven’t got the work because I don’t have the demand there,” Chief Executive Officer Steven Hesketh told the House of Lords Economic Affairs Committee. He described the future for the firm, which runs hotels in Liverpool and Chester in northern England, as “unbelievably dim.”

Furlough Ends With U.K. Jobs Market Facing a Bleak Winter

The cull is already under way at many firms, with job cuts jumping the most on record in the three months through August. The Resolution Foundation reckons unemployment hit 7% in September, the equivalent of around 2.4 million people. With over 2 million still furloughed as of this month, economists warn unemployment could be heading for levels last seen in the early 1990s.

Delays in announcing a replacement for furlough may have made matters worse. Sandwich chain Pret a Manger, retailer John Lewis and Rolls-Royce Holdings are among firms that have collectively cut thousands of jobs in recent months.

Furlough Ends With U.K. Jobs Market Facing a Bleak Winter

The prospects for the young are particularly poor, with Resolution estimating the unemployment rate hit 20% among 18-24 years olds in September.

About a fifth of young people who were furloughed have now lost their jobs, and only a third of those who were let go have been able to find new work. Worryingly, those made redundant in hard-hit areas such as hospitality, leisure and non-food retail are concentrating their search for work in the same sectors.

Furlough Ends With U.K. Jobs Market Facing a Bleak Winter

“Once you lose your job it is really hard to get back in,” said Kathleen Henehan, a researcher at Resolution. “You can’t expect large-scale industry changes and labor reallocation to happen overnight. It raises some very tricky questions for us over the short term, medium term.”

©2020 Bloomberg L.P.

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