Coronavirus: Pressure growing on government to extend furlough scheme

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Britain's Chancellor of the Exchequer Rishi Sunak walks to 10 Downing Street in central London on April 8, 2020, ahead of the Government's daily COVID-19 news briefing. (TOLGA AKMEN/AFP via Getty Images)

Pressure is mounting on the government to extend its landmark job retention scheme beyond June, amid warnings that millions of workers could lose their jobs without additional state support.

Business groups and private sector economists have in recent days called on the government to extend the programme, which sees the government pay up to 80% of employee wages to a maximum of £2,500 ($3,148) per month.

Chancellor Rishi Sunak announced the scheme on 20 March to help support businesses through the COVID-19 lockdown. It was initially due to run until the end of May but has been extended to June.

Read more: UK government crisis spending to cost £104bn this year

Robert Wood, an economists at Bank of America, this week warned the UK could face a “double dip” economic crash unless the scheme is extended until December — one of the most radical suggestions from the private sector.

Ending the scheme in June would “just delay, not prevent, unemployment rises,” Wood wrote in a note sent to clients this week.

“If the government removes the job retention scheme, household's income will fall and unemployment rise in [the third quarter of 2020,” Wood wrote. “Households will then not have the money to spend even if lockdown restrictions are eased further into [the fourth quarter].”

Read more: 4m workers furloughed under government scheme

An extension until December would cost the government an estimated £100bn but Wood said the alternative would likely be more costly in the long run.

Wood’s warning echos that of former Bank of England rate setter Danny Blanchflower, who told Yahoo Finance UK earlier this week that the 4 million workers furloughed so far “may not get their jobs back” when the scheme ends. Economists fear private sector demand will not quickly bounce back once restrictions are lifted, leaving staff vulnerable.

A cyclist wearing a face mask rides past closed up shops on Portobello Road in West London as the UK continues in lockdown to help curb the spread of the coronavirus. (Victoria Jones/PA Images via Getty Images)

Manufacturing lobby group Make UK and the Federation of Small Businesses (FSB) both backed calls for the government to extend the scheme on Friday.

“All the indications at the moment indicate that, even if a gradual easing of lockdowns begins soon, the impact of this shock will continue to hit companies and livelihoods for some time to come,” Make UK chief executive Stephen Phipson said in Friday.

Read more: 3.2 million furloughed workers 'may not get their jobs back'

Phipson said over a third of Make UK’s members had furloughed staff with a fifth planning to furlough more over the next fortnight. A third of companies said they would only start to bring staff back once orders begin to recover.

“As such, Government may need to be flexible with its future support schemes in the same way that industry is going to have to be flexible with its recovery plans,” Phipson said.

FSB national chairman Mike Cherry said: “For certain sectors, the restrictions on gatherings and the scale of the lockdown will mean that some staff will face the possibility of furlough for a lengthy period.

“That is why the Government must continue to constantly provide support in this way until the crisis ends.”

Read more: UK's COVID-19 spending surge fuels a soaring budget deficit

Cherry also urged flexibility by allowing employers to bring staff back for just a few days a week while still allowing them to claim furlough pay for the remaining days.

The mounting pressure to extend the job retention scheme came as new figures showed the furlough programme has been far the most popular support measure announced by the government. The Office for National Statistics said the scheme would likely cost the government £49bn this year as a result of its strong uptake.