Emergency coronavirus support including the job retention scheme needs to be carefully phased out because abruptly stopping the scheme could “choke off recovery”, a think tank has warned.
The Institute for Fiscal Studies (IFS) said the furlough scheme cannot be “cut completely in one go”, and called for it to be extended past its currently scheduled end date of 30 April and then carefully phased out as the coronavirus restrictions ease.
In a series of recommendations made ahead of chancellor Rishi Sunak’s second budget statement next month, the IFS said the government needed to balance continuing support for jobs and businesses with “weaning the economy off blanket support”.
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“Many of the support measures introduced in response to the pandemic are set to expire shortly. They should be extended in some form, and phased out gradually rather than coming to an abrupt halt,” it said.
But the think tank added that it was important the furlough scheme did eventually come to an end because the economy would not be able to adjust properly so long as it remained in place.
Paul Johnson, director of the IFS, warned that any significant continuation of the scheme needed to be limited and tightly targeted, particularly where activity was more restricted for longer, such as in the aviation and airport industry. The government needed to “strike a balance between continuing support for jobs and businesses harmed by lockdowns and weaning the economy off blanket support that will impede necessary economic adjustment”, he said.
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Under the current iteration of the furlough scheme, the government pays 80 per cent of furloughed workers’ wages for hours not worked, capped at £2,500 per month, while employers are only expected to pay pension and national insurance contributions. Employers pay workers as normal for hours worked. Originally billed to end on 31 March, the scheme has already been extended to the end of April.
The cost of an extension has long been a concern; however, CIPD chief executive Peter Cheese has previously stated that the long-term benefits would more than mitigate it. “We believe that a gradual phasing out of the [job retention scheme] from April to the end of June would provide sufficient support for job protection, with the extension buying time for the vaccination programme to take fuller effect,” he said in December.
“Jobs that are lost over this period are likely to feed into long-term unemployment as recruitment and onboarding costs will mean cash-strapped employers will hesitate to hire permanent staff until they are certain about the strength of the economy.”
The budget is set to take place on Wednesday 3 March.
