Sunak says we can’t afford to extend furlough. But other countries are doing it

The government’s furlough scheme, introduced by Rishi Sunak, was welcomed by Labour and the trade unions as a bold and necessary move. It supported 32% of UK workers at one point during the crisis, with that proportion falling to 18% by mid-July. The Office for National Statistics tells us that the arts, entertainment and recreation industry had a whopping 47% of its workforce furloughed, and accommodation and food services had 43%.

Under this programme, businesses have been able to claim 80% of a staff member’s regular monthly salary, up to a maximum of £2,500. The money must be passed on to the employee, can be topped up by the employer, and until this month the scheme covered National Insurance and pension contributions. While many were unjustly excluded from that help, it has protected the jobs of 9.5 million people in the UK.

That is changing now. From August 1st, the level of support is being reduced each month with the scheme ultimately being wound down by the end of October. In August, the government is paying 80% of salaries but businesses now pay NICs and pension contributions; in September, the government will pay 70% of wages up to a cap of £2,187; and in October, it will pay 60% of wages up to a cap of £1,875 for the hours that the employee is on furlough.

While the government has been trying to extricate itself as quickly as possible from the furlough scheme, Labour has repeatedly called for a rethink. The opposition party has urged the Tories to change course from what it describes as a “one-size-fits-all” approach and to extend the support for the most hard-hit sectors – such as hospitality and tourism. Ignoring these demands, and those of think tanks who warn of “economic scarring”, Boris Johnson and Rishi Sunak are pressing ahead with plans to scrap the scheme in a little under three months.

Ministers say furlough needs to come to an end now. But is that true? Lots of countries across Europe have schemes, and many of those are set to continue. In Spain, for example, Podemos politician Yolanda Díaz told the Financial Times that it “would not make sense to undertake this gigantic, unprecedented effort in the Spanish economy [to preserve jobs] and then just let things fall away”. The government there is expected to bring forward plans to extend its job retention programme until at least the end of the year and possibly into 2021. Italy is reported to be considering doing the same.

In France, employees will get 60% of their normal gross wages from October 1st under its furlough scheme – down from 70% at the moment – with the state covering 60% of the cost for employers, reduced from the current 85%. This will be available for six months. The government has also announced a new programme from October 1st, which will be available for two years. It will allow a company to reduce an employee’s work by up to 40%, and workers will receive up to 70% of gross wages for the period out of work. The state will reimburse companies for up to 85% of the cost if registered before October 1st, and 80% thereafter.

The ‘Kurzarbeit’ short-time working scheme helped Germany during the financial crash, with the country being the only one in the G7 not to experience a fall in unemployment in 2009. It has been put to the test in this crisis – back then, just under 1.5 million workers in the country were furloughed, compared to 7.3 million in May 2020. Normally, Kurzarbeit is limited to 12 months but it has been extended to 21 months since the coronavirus crisis began. It provides an income “replacement rate” of 60% immediately, stepping up to 80% for workers furloughed for more than seven months.

How much would it cost us, here in the UK, to extend our furlough scheme? Calculated as the total money spent paying the wages of furloughed workers, the UK’s scheme cost about £14bn a month in June. But this doesn’t account for the amount offset by NICs that employers are now paying, or the income tax on the wages of those on furlough. According to the National Institute for Economic and Social Research, the net cost of extending the scheme until mid-2021 would be around £10bn, and this would ensure that unemployment stays at around two rather than three million people.

The question isn’t whether we can afford to extend the furlough scheme – it’s whether we can afford not to. Between five and six million people are estimated to be still on furlough, and recent modelling shows that 1.5 million people are likely to be made unemployed when the scheme ends in October. The Bank of England has predicted that unemployment will climb from its current 3.9% to 7.5%. Those working in sectors characterised by low pay and insecure employment will be hit hardest and quickest. But the cost to the public purse has been deemed too much, and the people least able to bear the brunt of the crisis will be forced to do just that.