Following the end of the government’s furlough scheme, we take a look at hopes, fears and predictions for the millions of people still being supported by the scheme, and the steps the government can take to safeguard the recovery of our economy.
Starting in March 2020, the government’s furlough programme paid 80% of the wages of employees (up to a maximum of £2,500 a month) who would otherwise have lost their jobs, leaving employers to cover only minimal costs (National Insurance and pensions contributions). From July this year, the scheme has started to wind down. The government is now paying 60% of wages, leaving employers to pick up the bill for the missing 40% for any workers who have not yet returned to work or who have been made redundant.
Data from the end of April 2021 showed that around one in every eight employees remained on furlough, a total of 3.4 million. In London, the unemployment total is expected to peak at 9.4%, or 464,000 economically active residents, by the end of this year. The forecast, commissioned by London Councils, anticipates a worst-case scenario of 11.8% unemployment by next February. London Councils are calling for an “urgent reset” of the government’s approach to unemployment support, fearing a “painful legacy” of unemployment following Covid-19.
Prior to coronavirus, long-term unemployment predominantly affected specific groups of people and highlighted social inequalities. Groups notably affected included people under 25 and over 60, women and BAME people. These pre-existing gaps have been exacerbated by the effects of Covid-19.
The Institute for Fiscal Studies found that those aged under 25 or over 65 are especially likely to be furloughed, while the London Councils report notes the greater impact on ethnic minorities: ethnic-minority residents in central London are twice as likely to be unemployed (14.9% compared to 6.9%). Government analysis demonstrates that unemployment rates for minority ethnic groups were higher than average before the coronavirus pandemic, and saw a larger increase than average from January-March 2020 to January-March 2021. This is connected to the volume of minority ethnic people working in sectors most impacted by the pandemic. There is, for example, a higher percentage of workers of Pakistani and Bangladeshi heritage working in the distribution, hotels and restaurants sectors, all of which have suffered.
When it comes to young people, the picture is less clear. Data shows the 16-24 age group have been hit hard by Covid-19, again in part due to the likelihood of having to work in precarious industries such as hospitality and tourism. The London Councils report implies that this group will be hardest hit by job losses and will constitute a third of unemployed Londoners. However, government reporting notes that ongoing economic recovery, and particularly the reopening of hospitality, have significantly decreased the number of unemployed and furloughed young people. Even so, they remain in precarious jobs, often without fixed hours or contracts, vulnerable to shifting regulations and economic stability.
In London, those with fewer qualifications are also likely to be hardest hit by the end of the furlough scheme, experiencing more than three times the unemployment rate compared to those with qualifications. The London Councils report correlates this with the fact that industries with the highest numbers of furloughed workers – such as retail, accommodation and food – also have the highest proportions of workers with no qualifications. These workers will require significant support to find secure work.
Of course, the demographics of unemployed and furloughed workers differ depending on where you are in the country. For example, in places more reliant on the aviation industry – particularly the towns surrounding major airports – take-up of the furlough scheme has been high. The aviation industry is recovering at a slower rate than other sectors, so these areas will be harder hit by the end of the furlough scheme.
Plugging the skills gap
Research has found that 79% of people on furlough are considering applying for jobs that they are overqualified for, reflecting a pessimistic outlook on the post-Covid-19 jobs market. Industries where people were most likely to consider applying for jobs they are overqualified for included travel (88%), hospitality (86%) and automotive (83%). Fewer respondents from science and pharma (67%), manufacturing (70%) and healthcare (71%) were considering doing so. The harder-hit industries are where pessimism among jobseekers is at its height, leaving people less willing to spend time and money gaining new skills or training to enter another industry. But skills training is going to be essential. Not only are huge numbers of people expected to be unemployed following the end of the furlough scheme, but there is a mismatch between their skills and those required to fill vacant positions.
The government sees those still on furlough as a vast potential labour supply, solving the problem for firms struggling to hire chefs, baristas, butchers, lorry drivers and builders. In other words, worker shortages created by Brexit. The idea is that ending the scheme will plug the gap in the UK workforce that is stalling economic recovery. Ending government support will force employers to either re-hire their employees on furlough or make them redundant. This will leave many workers free to take up positions in areas where employment is proving difficult.
However, according to The Guardian, business leaders have warned that this optimistic outlook is not realistic. Removing the scheme will have little impact on job vacancies due to mismatches in the workforce: turning an airline pilot into a butcher or trucker is unlikely to happen overnight, and neither is the movement of thousands of workers from job-bereft cities to labour-starved towns. Tony Danker, director general of the CBI lobby group, said: “The thing that I’m concerned about with the end of furlough is that government believe the labour shortage problem will be corrected. And I think they are completely wrong about that.” This attempt to solve the skills gap is reminiscent of the abandoned campaign that encouraged people working in creative industries to retrain; a campaign dismissed as “crass” by the culture secretary.
Employment support beyond furlough
At the start of the year, the Resolution Foundation laid out clear recommendations for policymakers to ease the impending end of furlough (then scheduled for March). They suggested that workers return to work slowly, starting with 20% of their previous hours, while employer contributions stayed the same. The intention was to phase the return slowly, in pace with economic recovery, so that the vast majority of furloughed workers could move back into their previous positions. As it stands, with the economy still not at pre-Covid levels, particularly in industries like aviation, the end of furlough will mean a sharp rise in unemployment.
The Resolution Foundation’s report also cautioned that long-term furloughed workers will be held back in the same way as long-term unemployed people, experiencing a loss of confidence and skills depreciation. And there is also a risk that employers will see time out of work as a drawback, and put the CVs of long-term furloughed jobseekers at the bottom of the pile. Understanding needs to be fostered with employers to combat this, while employment support should be geared to enabling long-term furloughed workers to regain skills and confidence. Furthermore, when the furlough scheme draws to an end there will be a sudden increase in the number of jobseekers requiring support. Employment services need to be scaled up, ready to handle this influx.
There is a shared responsibility between the government and citizens to solve the unemployment crisis we are facing. Calling on jobseekers to be optimistic, Neil Trussler, Chief Delivery Officer at NTT DATA UK, said: “Technology kept businesses going in 2020, and many will be keen to build on their success in the digital economy. UK workers should be adaptable, considering reskilling or upskilling to connect with these new job opportunities. Given the existing shortage of tech skills in the UK economy, those who learn skills in this area will be in high demand.” Meanwhile, author of the London Councils report Ellie Evans, senior partner at Volterra Partners, cautioned: “We also must not forget the entrenched inequalities facing certain subgroups of the population. Targeted support to improve access for these groups, break down barriers and widen opportunities must remain at the forefront of policymaking.”
Finally, the TUC has called on the UK government to build on the success of furlough by putting in place a permanent scheme to deal with future periods of economic turbulence. They note that, “the UK is rare in not having such a permanent scheme in place; 23 OECD countries had short-time working schemes in place before the pandemic.” They argue that a permanent scheme would help to limit the impact of future economic disruptions caused by variants of the coronavirus, climate change and global financial insecurities. Schemes like furlough, ‘save jobs, protect workers’ incomes, limit the impact of crises on inequalities, reduce recruitment and hiring costs for business, and help protect communities from the devastation of long-term unemployment.”