The furlough scheme has been Rishi Sunak’s greatest triumph. A few weeks after being catapulted into the Treasury, this lifelong free-marketeer agreed to underwrite nine million jobs, spending a total of £65bn of taxpayers’ money – and counting.
Despite his past as a fiscal conservative, the Chancellor has boasted of the unprecedented scale of his largesse and the way it prevented a huge wave of unemployment. The official jobless rate peaked late last year at just 5.2 per cent and has since been trending downwards, compared to a peak of 8.5 per cent after the global financial crisis.
But furlough could soon turn from a political asset to a liability. Conservative MPs are concerned that it may now be holding back the economic recovery, by exacerbating staffing shortages in some industries and delaying the inevitable shake-up of the labour market in the post-pandemic world.
“It’s completely mad that we’ve extended furlough to September,” says one former Cabinet minister. “Every business that I speak to in whatever sector, their number one problem is not having enough staff – but we’re encouraging people to stay on furlough and use it to fund their summer staycation.”
Mr Sunak has no plans to bring forward the end of the furlough scheme. But he is adamant that, unlike when he tried to wind it down last year, he will go through with it this time.
A source close to the Chancellor says businesses have had “fair warning”, and insists that by gradually increasing the proportion of salaries employers must pay the Government is “easing business back to normality and not creating a cliff edge”.
The ex-minister says that appeals to the Treasury to speed up the timetable proved fruitless: “I think they’re too burnt by all their previous U-turns, that’s the one thing they’re really worried about.” But equally, union demands to extend furlough for as long as the pandemic is still hurting the economy are certain to fall on deaf ears.
One alternative after September could be a sectoral solution. This is likely to be the strategy that Labour advocates: a senior party source says it does not want to “be the ‘forever furlough’ party”, but the new shadow Chancellor Rachel Reeves is likely to push Mr Sunak to guarantee that some form of economic support remains in place for industries that are still unable to operate normally.
Ms Reeves will be joined in this effort by some Conservative MPs: hardline Brexiter Esther McVey and leading centrist Tom Tugendhat were among 77 MPs and peers to sign a cross-party letter this week demanding a separate furlough programme for the travel sector. The Chancellor has so far resisted bringing in extra job protections for some industries, meaning the group faces an uphill battle to win him over.
The looming skills shortage is the main reason the Government would rather risk ending furlough too early than too late. Quizzed by the Commons liaison committee of senior MPs last week, Boris Johnson said: “If you look at what’s actually happening in the jobs market, the problem at the moment is a shortage of labour not a shortage of jobs and that’s what we need to address.”
Stephen Crabb, a former Work and Pensions Secretary, directly blamed furlough for the shortfall: “If you want to know why there are labour pinch points at the moment in the economy, we’ve got two million pretty skilled workers tied up on furlough still. I hear that a lot from employers, about their frustrations over people still on furlough that they can’t get back into work.”
But there are also more fundamental concerns among Conservatives anxious that their party may be seen to encourage the same sort of benefits dependency that it has previously accused Labour of fomenting.
One minister describes furlough as an “addiction”, adding: “You’re not allowed to do the job that you’re furloughed from, but what do people do? They go out and get another job.” An MP from the 2019 “red wall” intake concurs, saying that in their area some workers are refusing to return to their old job after being furloughed because they have picked up work elsewhere in the meantime.
The most recent statistics showed 2.4 million people still on furlough, including fully 34 per cent of hospitality workers and 29 per cent of those employed in the arts. If the restive Tories are right, many of these are already supporting themselves through alternative means, or will be able to find alternative jobs by exploiting shortages in the economy. But there is at least a chance that unemployment could soar in the spring instead, forcing Mr Sunak to take emergency measures at exactly the same time he wants to start bringing the deficit under control.
Another reckoning may come for the Chancellor in the long term. Furlough, designed on the German “Kurzarbeit” programme, was designed to prevent joblessness by keeping workers tied to their employers even while bosses could not afford to pay them. It was a success on its own terms, but time may tell that it was not the best approach – as even some Treasury officials already admit. In the US, where there was no furlough but jobless benefit payments were hiked and stimulus cheques sent to every household, a spike in unemployment proved shortlived – and the overall economic recovery has proceeded much faster than Britain’s. Mr Sunak could come to reassess his number-one achievement.