Furlough was an effective bridge, but many have yet to cross the Covid chasm

Analysis: mismatches between high-vacancy sectors and those receiving emergency support belie Sunak’s trust in market forces

Over the past 18 months, Rishi Sunak has been in bridge-building mode. Providing billions of pounds in emergency financial support through the furlough scheme to carry businesses and workers over the chasm of the coronavirus pandemic.

In an unprecedented act of state intervention worth £70bn, almost 12 million jobs were protected from the worst economic collapse in 300 years. More than 9bn hours of pay was topped up to 80% of a workers’ usual wage, up to £2,500 per month, across every industry from advertising to waste collection.

That changed on Thursday, when the chancellor brought to an end the biggest single measure out of £350bn of emergency aid unfurled during the pandemic, designed to transport businesses and households through the worst of the crisis.

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Although furlough might have been hugely effective as a bridge to carry millions through lockdown, for many, the other side of the coronavirus chasm is still out of reach. According to the latest official figures, as many as 1.6 million jobs were still receiving emergency wage support at the end of July, with the heaviest concentrations in sectors of the economy still hard hit by Covid-19.

More than half of workers in air passenger transport were still on the scheme, including those at Gatwick and Heathrow, where flights are still below pre-Covid levels. More than a quarter of travel agents and tour operators were also still furloughed, in a stark contrast to the 5% average for all sectors.

So far, the chancellor has been relaxed about halting the furlough, believing record job vacancies will fill chronic labour shortages and help unemployed people find work; killing two birds with one stone.

However, experts warn there are mismatches between the regions and industries with high vacancy rates and areas with the most furloughed staff. This means matching furloughed workers to job vacancies will not be a smooth process. Moving from cabin crew to the cab of a truck cannot happen overnight.

While vacancies have surged, the increase has been driven by low-paid work, and in specific sectors such as hospitality, care and logistics. Competition elsewhere is at least 10% higher than before the pandemic for 8 million workers, research from the Institute for Fiscal Studies shows.

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There is little debate over whether furlough was money well spent. Most economists believe the vast sums involved were a price worth paying to preserve the productive capacity of Britain’s economy, helping to save millions of workers from unemployment during the worst health emergency for a century.

Instead of surging to the highest levels since the 1980s, as forecast in the depths of the pandemic last year, unemployment is currently less than 200,000 higher than on the eve of the crisis, at about 1.5 million.

Almost 9 million jobs were furloughed at the peak of the first lockdown in May last year, more than a quarter of the UK workforce. That was followed by a peak of about 5 million this January in the winter lockdown, after Sunak’s last-minute U-turn to extend the scheme last November.

The Office for Budget Responsibility, the Treasury’s economics watchdog, had expected unemployment to peak at 12% last winter if the scheme closed as planned. Unemployment would have been at least 2 million higher.

With household incomes largely protected, the groundwork was laid to power Britain’s economic recovery from lockdown as consumers unleashed a wave of pent-up demand, lifting retail sales above pre-crisis levels.

However, not everyone benefited from Sunak’s safety net. Millions were excluded, mainly self-employed people who slipped through the cracks of the eligibility criteria, instead having to rely on a far less generous benefits system.

They may soon be joined by thousands more in claiming employment allowance. Analysts at the New Economics Foundation forecast that more than 700,000 jobs are at risk from the end of the furlough scheme. At a time when universal credit benefits are being cut by £20 per week, energy bills are soaring and inflation is taking off, experts warn rates of financial hardship are set to soar this winter.

Contributor

Richard Partington Economics correspondent

The GuardianTramp

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