6.4 billion hours spent on furlough in 2020

Workers spent a total of approximately 6.4 billion hours (equivalent to 700,000 years) on the Job Retention Scheme (JRS, furlough) in 2020 and are predicted to spend 3.3 billion more on the scheme in 2021, according to new analysis from the New Economics Foundation (NEF) published today. Therefore including a training and education element to furlough could be transformational for many of these workers.

Further analysis from NEF shows that once the furlough scheme ends in September, a further 850,000 jobs could be at-risk of becoming redundant or seeing a reduction in hours or pay. The analysis highlights that the furlough scheme was an essential national response to protect people’s incomes and livelihoods from the pandemic but that the policy failed to maximise the potential of supporting furloughed workers to deal with an uncertain future through training and upskilling.

Previous analysis using a NEF model, that the Treasury adopted for their own policy costings back in October, estimated that between two and three million jobs would have been at risk of unemployment, loss of hours, or loss of pay at the end of April had the furlough scheme not been extended. Using the same model, built to understand the effectiveness of different government support scheme designs, NEF estimate that 90% of ​‘at-risk’ jobs could initially be protected by the extended scheme. But the analysis shows that from July, when the scheme becomes less generous and asks employers to contribute first 10% to unworked hours, then 20% in August and September, the scheme is only cost-effective for 57% of jobs that might otherwise be viable when the epidemic reaches permanently lower levels.

This leaves 43% of jobs at risk of either being made redundant or seeing a cut in hours or pay. While some businesses may be able to afford a modest cost of keeping their workers on furlough, many businesses have had their capacity to do so eroded by lost turnover. The latest Business Impact of COVID-19 Survey from the ONS suggests 32% of businesses (weighted by turnover) have less than three months of cash reserves, and 8% have less than one month. This also means that if the end of the furlough schemes turns out to be premature in terms of the rate of economic recovery, businesses will have very little capacity to keep workers on their books until business activity fully returns. The risk of the September deadline for furlough being premature appears to be rising, with epidemiological modelling presented to government in February suggesting a high likelihood of a third wave in summer or autumn 2021.

In order to avoid a surge in unemployment driven by the tapering of the furlough scheme NEF therefore recommends:

• Reducing the employer contribution over summer: This would make the furlough scheme more cost effective for more businesses
• Extending furlough beyond September and integrating a training offer into a future scheme: Some form of extension to the furlough scheme should be put in place to allow workers to use their subsidised non-working hours on training. This should be prioritised for industries that may never recover pre-pandemic levels of output. Skilling up workers in the time they have while on furlough can not only make them more attractive for their employers to bring back, but in the long run can improve the return the government sees, as higher skilled workers are more productive and produce a greater tax return.

These recommendations follow an intervention this week from Andy Haldane, the Chief Economist of the Bank of England, who stated: ​“Nonetheless, the scale of the skills challenge in the UK was huge pre-Covid and is larger-still now, particularly among the youngest and least-skilled. This means the risk of workers facing the jobs equivalent of long Covid is considerable. Avoiding that chronic economic ailment will require structural, skill-focused policies, equivalent in speed and scale to the demand-side policies already put in place.”

Previous NEF analysis looking at the aviation sector, where over 44% of workers remained furloughed as of the beginning of March, shows that furlough type scheme with a training component would likely be cost-neutral to the government by the end of the next parliamentary term. Preventing a spike in the number of workers made redundant and increasing the skillsets of transitioning workers reduces the amount of time they are likely to spend unemployed, thereby reducing the cost to the government in social security payments. Upskilling workers also increases the government’s future tax-take as they move into more productive jobs, and increasing worker earnings also contributes a stimulus to the economy at a time when consumer spending is in short supply.

Alex Chapman, Senior Researcher at the New Economics Foundation, said: ​“The government is missing a trick on the furlough scheme. They have been so worried about avoiding a scheme that subsidises jobs that may never return that they have failed to seize the opportunity to use the scheme to skill up and support workers back into employment, and transition workers whose jobs do get cut into new roles.

“The UK economy is undergoing structural change, some prolonged pandemic impacts are unavoidable, but so too are automation, and the zero-carbon transition. Through these crises there is a cast-iron case for a longer-term job support scheme, encouraging employers to keep workers in at least partial employment, while skilling them for the jobs and industries of the future.”

Contact

Sofie Jenkinson, sofie.jenkinson@neweconomics.org, 07981023031

Notes

The New Economics Foundation is a charitable think tank who are wholly independent of political parties and committed to being transparent about how it is funded.

For further details on NEF’s job retention scheme model please see ​‘Job Support Scheme leaves two million jobs unprotected’, October 2020. NEF modelling of hours on furlough assumes fully furloughed workers were working the UK average number of weekly hours (32 hours) prior to registering on the scheme and partially furloughed workers are furloughed for 50% of their previous weekly hours (16 hours). The ratio between fully and partially furloughed workers is assumed to remain broadly constant throughout the scheme’s life, as has been the case to-date. The rate of furlough in future months is estimated based on NEF analysis of the government’s proposed roadmap of lockdown easing and modelled relationships between levels of restriction and rates of furlough.

NEF’s analysis on the proposed Job Support Scheme (JSS) in October 2020 showed that two million jobs would be left unprotected https://​newe​co​nom​ics​.org/​2​0​2​0​/​1​0​/​j​o​b​-​s​u​p​p​o​r​t​-​s​c​h​e​m​e​-​l​e​a​v​e​s​-​t​w​o​-​m​i​l​l​i​o​n​-​j​o​b​s​-​u​n​p​r​o​t​ected

Previous NEF analysis on the aviation sector can be found here: https://​newe​co​nom​ics​.org/​2​0​2​0​/​0​6​/​c​r​i​s​i​s​-​s​u​p​p​o​r​t​-​t​o​-​a​v​i​a​t​i​o​n​-​a​n​d​-​t​h​e​-​r​i​g​h​t​-​t​o​-​r​e​train