UK business leaders warn over closure of furlough scheme

Chancellor’s job retention bonus will do little to avoid unemployment surge, say firms

Business leaders have warned the government that closing the furlough scheme and offering £1,000 bonuses to firms to keep their staff on will do little to prevent rising unemployment.

The chancellor, Rishi Sunak, used his summer statement to announce the bonus scheme for companies if they bring back staff from furlough and employ them until at least the end of January.

In measures aimed at preventing mass unemployment as the coronavirus struck, 9.4m jobs have been furloughed by 1.1m businesses since March, costing the exchequer £27.4bn so far. The scheme, which is due to be wound down by the the end of October, pays 80% of workers’ wages up to £2,500 per month.

Sunak said if every firm kept all of its furloughed staff and applied for the bonus, it would cost the Treasury £9.4bn.

However, employment experts and business chiefs said the policy would fail to tip the balance for companies struggling with cashflow problems. They said the scheme could instead end up costing taxpayers billions of pounds while doing little to prevent a rise in unemployment.

Peter Cheese, chief executive of the Chartered Institute of Personnel and Development, said extending the furlough scheme beyond October and providing support for companies in the hardest-hit sectors of the economy, such as hospitality and leisure, would have had a bigger impact.

“We are not convinced the job retention bonus will provide sufficient incentive to encourage employers to bring workers back from furlough beyond those they would be planning to bring anyway,” he said.

Jonathan Geldart, director general of the Institute of Directors, said: “The bonus offers something of an off-ramp from the furlough scheme, and firms will certainly be doing all they can to keep people on board. However, with cash so tight now, January may feel like a long way off for some businesses.”

Labour, trade unions and business leaders had been calling on Sunak to extend the furlough scheme beyond October, as well as to offer more support through the scheme to hospitality firms, which have been among the hardest hit by the coronavirus lockdown.

Economists said the £1,000 bonuses appeared generous on the surface but were small compared with the cost of employing staff, and were worth much less than the furlough scheme.

Treasury sources said other measures – such as VAT cuts for hospitality and the discount scheme for restaurants – would help the hardest-hit firms as the furlough scheme is wound down. Ministers believe young people, those working part time and with lower income are more likely to benefit from the bonus scheme.

The National Institute of Economic and Social Research said the bonus was relatively small compared with the average UK wage of £530 per week.

Garry Young, the deputy director of the Niesr, said: “While the aim of the summer statement is laudable, the new measures look to be badly timed and could precipitate a rapid increase in unemployment.

“The incentives offered to employers look too small to be effective. Many employers have been topping up the pay of furloughed workers and are expected to bear more of the cost of the scheme from next month. They will be reluctant to do this now they know that the scheme won’t be extended.”


Richard Partington Economics correspondent

The GuardianTramp

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