Matthew Lynn

Is the furlough scheme too generous to be stopped?

Is the furlough scheme too generous to be stopped?
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You can get 80 per cent of your salary, and sometimes even 100 per cent, without actually working. Companies are getting virtually free loans, and can dump their often troublesome staff on the Treasury payroll, and entrepreneurs can get direct injections of cash from the state without actually having to launch any products.

Sure we can understand why the Government has stepped in with so much cash. It needs to stop the economy collapsing, and a lot of businesses would have gone under already if that support was not available. But there's a catch. We’ve just created the biggest free lunch in history, and we shouldn’t be surprised if some people start to enjoy it.

It might be boring, but the polling is starting to show that lockdown is a lot more popular than anyone ever imagined it would be. According to YouGov, 88 per cent of people think it would be wrong to start loosening restrictions now – only 5 per cent are in favour. Only 30 per cent think it would be the right thing to do in three week’s time. A majority of the public would be happy for the lockdown to run into June. And even when it is loosened, people think it is more important to re-open schools than for non-essential workers to go back to the office (only 19 per cent, presumably the workaholics, or people halfway through a budding office romance, think that is a top priority).

The scientists were worried lockdown wouldn’t stick, and we would soon rebel. In fact, it is turning out to be surprisingly popular. Of course, many people are worried about their health and the safety of their loved ones. But could the generous support available be a factor as well? Lockdown is proving a lot easier for many people and companies than the real world ever was. It might come as a surprise to the mandarins at the Treasury, but lots of people don't like working very much. If they can get 80 per cent of their salary, especially with the sun shining, why bother? Likewise, most companies are a lot easier to run without being bothered by any customers. So long as the money keeps flowing what's not to like?

Anecdotally, workers are asking to be furloughed, and complaining when they haven’t been, while entrepreneurs are tweaking their balance sheets to qualify for the latest bailout from the Chancellor’s new start-up fund. The furlough scheme has already been extended into June, and employer’s groups are starting to argue for July and August as well. An ‘emergency measure’ is starting to last longer and longer, as emergency measures usually do.

Of course, no one would deny that they are plenty of cases of genuine hardship out there. Lots of people have fallen through the net, and many companies are wondering how they will ever re-open. And yet, it is also starting to become clear the Chancellor may have been a little too generous. When you offer people something for nothing, it creates all kinds of perverse incentives. In truth, we need to fix that. At the very least, we should gradually taper down the benefits – 80 per cent of your salary drops by 10 per cent for every month after June, for example, and start to impose interest on free loans. Otherwise we will never get out of this – and the free lunch will never end.

Written byMatthew Lynn

Matthew Lynn is a financial columnist and author of ‘Bust: Greece, The Euro and The Sovereign Debt Crisis’ and ‘The Long Depression: The Slump of 2008 to 2031’

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Topics in this articlePoliticscoronavirusfurlough