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Extend furlough scheme ‘or risk second wave of job cuts’

Workers at a UK car factory

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The UK risks a second wave of job cuts and a slower economic recovery if it does not extend its furlough scheme, leading business groups have warned.

Manufacturing body Make UK said the job retention scheme should last beyond October for hard-hit sectors that are already slashing posts.

The CBI meanwhile said a replacement was needed to avoid a “cliff edge”.

The Prime Minister has refused to extend the scheme, saying it would only keep people “in suspended animation”.

Under the Coronavirus Job Retention Scheme, workers placed on leave have received 80% of their pay, up to a maximum of £2,500 a month.

At first this was all paid for by the government, but firms are now having to make a contribution to wages as well.

Almost 10 million have benefited, but the programme will end on 31 October prompting warnings that a wave of cuts could follow.

In a survey of more than 200 manufacturing firms, Make UK said more than 60% wanted the scheme extended for strategic industries such as aerospace and car manufacturing.

A further quarter said it should be continued should there be further lockdowns or a second wave of infections.

Make UK noted that Germany, Belgium, Australia and France had all decided to extend or launch new wage support schemes into next year.

“The protection of key skills should be a strategic national priority as this will be the first building block in getting the economy up and running,” said Stephen Phipson, chief executive of Make UK.

“The starting point for this should be an extension of the Job Retention Scheme to those sectors which are not just our most important but who have been hit hardest.

“Failure to do so will leave us out of step with our major competitors and risk a loss of key skills when we can least afford to do so.”

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Image caption

Boris Johnson has said extending the scheme would only keep people “in suspended animation”

The head of the CBI, Dame Carolyn Fairbairn, told the Financial Times that she acknowledged the furlough scheme – which is expected to cost £80bn – had been expensive, but said it had been “an absolute lifesaver” and more help was needed.

She said that about a quarter of businesses in the hospitality, retail, leisure and travel sectors have warned they are at risk of insolvency.

“Many companies will find that cliff edge very difficult to manage… it’s too soon to pull business support away at the end of October,” she told the FT.

Dame Carolyn said any new scheme should be targeted at companies most at need, have less generous terms than the existing scheme, and should also not be used to support jobs that were never going to return.

She warned there could be a rise in firms making redundancies from mid-September – to allow for the 45-day notice period needed for redundancy proceedings ahead of the October cut-off.

Rising unemployment

The UK’s headline unemployment rate has remained at 3.9% since the lockdown was introduced thanks to the furlough scheme.

But the Bank of England expects the rate to double to 7.5% by the end of the year as government-funded support schemes come to an end.

Thousands of job cuts have already been announced by firm such as Rolls-Royce, Costa Coffee, Pret A Manger, Pizza Express, British Airways and BP.

A Treasury spokesman said: “The Coronavirus Job Retention Scheme will have been open for eight months from start to finish – with the government helping to pay the wages of over 9.6 million jobs so far.

“But we’ve been clear that that we can’t sustain this situation indefinitely and must now focus on providing fresh work opportunities for those in need across the UK.

“We will continue to support businesses bringing back staff through the £1,000 job retention bonus, while our Plan for Jobs will drive our economic recovery by creating new roles for young people and new incentives for training and apprenticeships.”

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