U.K. Hints at More Help for Jobs After Furlough Plan Ends

(Bloomberg) -- Chancellor of the Exchequer Rishi Sunak gave the strongest hint yet that he’ll support U.K. jobs after the government’s furlough program ends next month, meeting a key demand of business lobbies and the opposition Labour Party.

Sunak, speaking in Parliament after data showed the economy has shed almost 700,000 jobs during the coronavirus-induced recession, acknowledged that businesses need help. He was responding to questions by Treasury Committee Chairman Mel Stride on whether he will provide more assistance beyond Oct. 31.

“I hope that he will be reassured that throughout this crisis I have not hesitated to act in creative and effective ways to support jobs and employment and will continue to do so,” Sunak said.

While the finance minister still isn’t planning to extend the furlough program, he is preparing new measures to help, according to two people familiar with the matter.

The U.K. stands out among major European economies for refusing to extend the flagship crisis plan, fearing that it would delay an inevitable overhaul of industries struggling to survive the virus. At the same time, job cuts announced by major companies and repeated warnings that unemployment is headed to levels unseen since Margaret Thatcher was prime minister in the 1980s are making it difficult for Sunak to avoid taking action.

Morgan Stanley said this month that a targeted approach to vulnerable industries would have a “comparatively modest” net cost of 3 billion pounds ($3.9 billion.)

Tuesday’s data by the Office of National Statistics showed employment fell by 102,000 in July even as the economy reopened. The pandemic also finally began filtering through to the unemployment rate -- so far subdued by the furlough program -- pushing the single-month figure up the most since 2013.

Deputy National Statistician Jonathan Athow said the labor market is starting to display characteristics more typical of a recession, with job losses rising and people previously declaring themselves inactive or in unpaid employment now joining the search for work.

The ONS report showed young people bore the brunt of job losses in the latest three months, with employment among 16-24 year olds falling by 156,000.

What Bloomberg’s Economists Say...

““Significant dangers lie ahead. We expect the jobless rate to hit 8.5% by year end as the scheme is wound down in an environment of weak demand -- that makes further monetary stimulus likely.”

-- Jamie Rush, chief European economist. Read his full REACT.

Think tanks estimate that as many as 3 million people will still be on furlough by the time the program unwinds.

“The critical period is going to be October and the number of people that come off the job retention scheme into jobs and the number that have a job,” said Philip Shaw, chief economist at Investec Bank Plc. “What is difficult is fiscal policy and what is the chancellor going to do.”

Officials point out that Sunak has already pledged more support for jobs beyond October in the form of a job retention bonus: employers who take back furloughed workers for three months will receive a 1,000-pound payment at the end of January for each person. It’s a program the chancellor has acknowledged has “deadweight” costs, because it’ll reward even those employers who would have taken their workers back regardless of the bonus.

Sunak told the Cabinet on Tuesday that “indefinitely keeping people out of work is not the answer. But rest assured we will be creative in order to find ways of effectively helping people.” The comments were reported earlier by The Sun newspaper.

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