iStockWhen the chancellor of the exchequer, Rishi Sunak, launched the furlough scheme to protect jobs following a full Covid lockdown, he would probably have been appalled to know that the scheme would still be in operation nearly a year-and-a-half later.
The policy has been refined but has been extended several times as Sunak bowed to the inevitable and accepted you can’t cut off a lifeline for business if you simultaneously insist they cannot operate for public health reasons.
It was always unwise to put an end date to the policy when uncertainty raged about getting to grips with the pandemic. His series of u-turns on extending furlough an indication of poor political management of an economic intervention.
The policy also played against type for free market Conservatives, aghast at the kind of eye-watering sums associated with the kind of intervention which smacked of ‘socialist intervention’.
It has been interesting to see and hear business leaders, normally sympathetic to the Conservative cause, plead for the kind of measures that would have come instinctively to a Labour chancellor.
Furlough was the price the Government has paid to avert mass unemployment. The policy has cost £70bn but has undoubtedly achieved what it set out do. At its height it was supporting some nine million jobs throughout the UK.
As the economy has gradually reopened the need for firms to rely on furlough has decreased. Currently it is supporting over a million jobs. The numbers on furlough have been falling as businesses get back to something approaching normal.
Now that it is to end, the key question is whether those jobs that currently rely on furlough will disappear. If a business is in a sector which is still the subject of significant restrictions – the travel industry comes to mind – won’t the end game be job losses?
The Bank of England predicts a small rise in unemployment as a result. The UK jobless figure stands at 4.8% and they predict it could rise to 5.5%, although that figure is well below the level of unemployment among the young which is running at more than 10%.
In a sense it is impossible to be exact about how many jobs will go as a result of ending the policy. Some firms might have cash reserves or sympathetic bank managers and they will have a plan to transition once the furlough money ends.
For others, already in debt, it might be that they will have no option but to cut costs and making people redundant will be inevitable.
On the plus side job vacancies are high, although whether or not you can match the skills of the new unemployed with the demands of firms looking to recruit is another matter.
A shortage of labour is a problem. Much has been written about the chronic shortage of HGV drivers. It is probably inevitable that firms will have to pay more for workers which is good for those seeking employment.
It is also equally the case that higher wages will be reflected in higher prices, which will boost inflationary pressures and might force the monetary policy committee of the Bank of England to sanction a modest increase in interest rates.
The broader economic outlook of course is wider than the labour market. After initial falls, the stock market has recovered and looks robust. The predictions of carnage haven’t happened in part because of furlough.
However, it is a tricky business predicting the economic outlook and that is probably especially true of the next couple of years. For one, firms do not know what will happen to demand as consumers possibly alter pre-Covid spending behaviour.
The car sector is booming, driven by a limited supply of new and used cars. Any firm associated with home improvements has benefitted from a stockpiling of consumer cash that would normally be spent on holidays.
Consequently, those in the travel sector operate in a mood of despair, fearing that continued restrictions will inevitably lead to job losses and a contraction of operations.
The ‘big picture’ economy rests on the experience of all firms in all sectors and it is impossible to be certain as uncertainty is the prevailing mood. Much of the stability is down to quantitative easing and Government intervention. It was never designed to last forever, and it is now coming to an end.
One feature in recent months is the debate around wages. The Covid experience has pointed to the heroic work of health service workers, pointed also to the scandal of low wages in the care sector and spoken to gaps in key areas of the supply chain.
The debate over financial rewards is a live one and will only intensify with the cost of living crisis generated by high inflation driven by high energy costs.
The chancellor draws a line under furlough on Thursday. But his next headache will be finding the money for demands for higher wages as the Government manage the consequences of the kind of cost-push inflation which was such a feature of Britain in the 1970s.
