End Of Furlough Scheme Sees Little Impact On Unemployment

Furloughed workers are still more likely to suffer higher levels of unemployment, but sector shortages are protecting staff from the worst anticipated effects.

Staff who were placed on furlough are six times more likely to lose their jobs than other workers, but an assessment of the programme has found that the end of the scheme has had little adverse impact on the levels of unemployment.

There had been concerns that the withdrawal of the scheme which ended last month with more than one million workers still benefiting from it could lead to a spike in unemployment and damage the UK’s sluggish economic recovery from the pandemic.

However, research by the prominent Resolution Foundation (RF) indicates that only 136,000 or so workers moved from furlough to unemployment or inactivity when the scheme closed, whereas sectors such as hospitality, care and heavy goods transport struggled with a major shortage of workers.

The study, based on a survey of around 6,100 adults of working age during the second half of last month, is the first attempt to examine the effects of closing the programme. It is still unclear whether people returned to work at their existing jobs or moved to new posts. Yet the absence of any evident economic upset since the scheme closed suggests workers for the main part returned to their existing jobs either part or full-time.

Unemployment forecast to fall

The most recent official data show that there were still 1.1 million furloughed employees when the scheme closed at the end of September, around half of whom, 44pc, were partially furloughed and working some hours. Almost nine-in-ten workers, 88pc, who were furloughed in September were employed in October, while 12pc moved into unemployment or inactivity.

The small rise in unemployment confirmed that Chancellor Rishi Sunak had been correct to extend the furlough scheme to the end of September, analysts say. Originally, the scheme had been due to close in March. This means that the greatest economic contraction in one-hundred years has resulted in one of the smallest recession-led rises in unemployment.

Charlie McCurdy, economist at the RF, says the Job Retention scheme has supported more than 11 million employees during its 18-month duration, preventing lockdowns and significant changes in work routines from causing huge increases in unemployment.

Although plans to close the scheme prematurely, he explains, led to concerns that it would spark an uptick in unemployment, extending the scheme to beyond the reopening of the economy this summer has helped to stem the rise.

The Office for Budget Responsibility (OBR), the independent public finances watchdog, has already marked down its prediction of the peak of unemployment to 5.2pc this autumn, from the 6.5pc it forecast in March this year. Currently, there are more than a million vacancies in the economy.

Public inclined to save rather than spend

Last week, Dara Khosrowshahi, Uber’s CEO, visited London amid a driver crisis for the company, now facing a 20,000 shortage. In the meantime, the number of jobs advertised in transport, logistics and warehousing has increased fourfold since the start of the pandemic.

While uncertainty over the economy persists, there is evidence that the public is saving money until the recovery becomes more robust, and that the poorest have suffered the most from the pandemic.

According to the Institute for Fiscal Studies (IFS), a Christmas spending spree, using money saved up during the pandemic, is unlikely to happen. People who were asked what they would do with an extra £500, told the think-tank on average that only £55 would be spent over the next three months.

Economists also have concerns that the poorest households are the least likely to increase their spending after suffering a disproportionately large drop in their overall income.

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