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14 December 2021

Could the furlough scheme be reintroduced?

The cost of bringing back the furlough scheme would be lower than failing to do so, say economists and business owners.

By Emma Haslett

Say what you like about the government’s ability to follow its own rules, but most economists agree that its furlough scheme was largely a success.

Launched at the same time as the first lockdown in March 2020, furlough supported 11.7 million jobs. It also cost £70bn, but it is credited with preventing a massive economic shock. Figures published by the Office for National Statistics on 14 December show just how crucial it was: the number of employees on payrolls rose by 257,000, to pre-pandemic levels, in November. Unemployment, meanwhile, dropped to 4.2 per cent between August and October – just 0.2 percentage points above pre-pandemic levels. 

But furlough – or the Coronavirus Job Retention Scheme, to give it its proper name – was wound up at the end of September this year. After Boris Johnson’s prediction of a “tidal wave” of Omicron cases in the next few weeks and the ensuing whispers of tighter restrictions or even another lockdown, how hard would it be to resurrect the furlough scheme? And what would be the economic cost of not doing so? 

The Plan B restrictions, which were announced on 8 December, have given businesses in the hospitality industry a preview of what may be to come – at the most lucrative time of the year for the sector. On 14 December, the trade body UK Hospitality predicted a 40 per cent drop in takings compared with pre-pandemic years. It said restaurants, bars and hotels experienced a 13 per cent drop in trade, and a 15 per cent increase in cancellations, after the announcement of Plan B restrictions.

Chris Christopher, the owner of The Pump tea rooms in Bolsover, says that the business has lost “about a third” of bookings. Nikki Worthington, the owner of the Market Café in Coalville, says if tighter measures come in, her business would struggle. “It would be extremely challenging,” she says. “A lot of businesses will not make it through… Now furlough has stopped, people are really struggling, mentally and financially.”

Reintroducing the scheme wouldn’t be complicated, says Carsten Jung, a senior economist at the Institute for Public Policy Research (IPPR) – partly because it’s likely that fewer businesses would need it this time around. 

“By the end of furlough, the cost was about £0.8bn per month, with 1.3m people on [the scheme],” he says. He compares it with last winter, when “there were just over one million” hospitality workers on furlough. 

“Obviously other industries would be affected but we might have just over one million or two million people on furlough. If history is anything to go by that could cost between £0.8bn and £1.5bn [per month].”

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Even without more stringent measures, the government should be providing businesses such as Christopher’s and Worthington’s with some financial support, says Suren Thiru, the head of economics at the British Chambers of Commerce (BCC). “Making more grant funding available, for example, could help the hardest hit,” he says. “Also looking at things like the VAT rate for retail hospitality, which was briefly cut to 5 per cent.” 

The problem is, Plan B is having a behavioural impact, says Thiru. “These particular measures are not directly restricting businesses, but they will trigger human behaviour,” he says. People are “less likely to go to city centre stores, pubs and restaurants”. 

And what if restrictions tighten, but the government isn’t ready to reintroduce the furlough scheme? Jung says there would be costs on an individual level and on an economic level. 

“A lot of people, predominantly on lower incomes, would lose their jobs at a time when the cost of living crisis is really hitting them hard. We expect further increases in gas prices, for instance, next year.

“We also know from the past that the people… [and] the sectors that were relying on furlough tended to be those that had more people with low incomes. So it would be a double whammy for people hit hardest by the cost of living crisis.”

Meanwhile, a spate of redundancies would be hard for both employers and employees. During a period of recovery, “it can take quite a long time for people to get back into jobs if they’re not already in them,” he says. 

“So we have this labour market where we have a lot of vacancies and businesses are only slowly filling the roles they need to have filled. And that is caused by people not being in the right place or not being in the right jobs.” Remarkably, “virtually everyone” on the furlough scheme returned to their old jobs, he adds.

The good news is that it is unlikely the government will return to a full lockdown without providing some financial support. The Times has reported that Rishi Sunak is ready to increase support if pubs, bars and restaurants are ordered to close, and that officials are working on a “range of options”. But that may be too late for the likes of Worthington. 

“The major challenge is not knowing what comes next,” she says.

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