Job retention scheme set to cost a third less than predicted, says watchdog

5 Jun 2020 By Siobhan Palmer

Economists say smaller than expected furlough bill highlights disproportionate impact on lower-paid workers

The coronavirus job retention scheme is likely to cost almost a third less than initially forecast, the UK’s public finance watchdog has announced, as figures reveal mostly lower-paid and part-time staff are being furloughed. 

In its latest report on the costs of the government’s coronavirus policies, published yesterday (4 June), the Office for Budget Responsibility (OBR) revised its overall estimated cost of the furlough scheme down 30 per cent, from £84bn to £60bn.

The watchdog said this was likely to be because employers were predominantly using the scheme to furlough staff who worked “significantly fewer hours” or were on below average hourly pay – even when controlling for the average pay of sectors worst hit by the lockdown.

It added it was also possible that a disproportionate number of people had been furloughed from more than one part-time job – which would make the average grant size appear lower than what individuals were receiving in total.

The reduction in the expected cost of the scheme would come as a relief to the Treasury, experts commented. But Dan Tomlinson, economist at the Resolution Foundation, said this was further evidence that the economic effects of the crisis were not being felt equally. 

“Low-paid workers have been hit the hardest by the crisis – whether they’ve been furloughed, suffered job losses, or put their lives on the line as key workers – and deserve a better deal in a post-pandemic world,” he said. “This should include higher pay, and the right to contracts that reflect the true number of hours worked.”

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The OBR initially estimated around 8 million jobs would be furloughed at an average monthly cost of about £1,700.

However, although 8.7 million jobs had been furloughed as of 31 May, the average grant per job was around £1,200. This put the average pre-virus weekly gross pay of jobs that had been furloughed at around £320, which was “much closer to the median wage of part-time workers than full-time workers,” the OBR report said.

“This suggests that employers have concentrated their use of the scheme on furloughing employees whose pre-virus jobs involved significantly fewer hours and/or lower hourly pay than the average of all employees,” the report said. “This seems to be true even when controlling for the higher propensity to furlough jobs in sectors with lower average pay.”

Latest survey figures from the Office for National Statistics suggested around 27 per cent of the workforce had been furloughed as of 5 April. This jumped to 80 per cent of the workforce in the accommodation and food services industry, a sector where 81 per cent of businesses reported having ceased trading or temporarily closed. 

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