The trouble with emergency financial measures is that the crises used to justify them never seem to end. Just as the Bank of England couldn’t bring itself to think the time was ever right to reel back the ultra-low interest rates and quantitative easing it introduced at the nadir of the 2008/09 financial crisis, so the furlough scheme is steadily becoming a permanent part of Britain’s welfare infrastructure. Originally scheduled to end last June, it is to be extended yet again until the end of this September, by which time it will have been in operation for 18 months. This will be three months after all Covid restrictions are due to end. What, then, will be the excuse for the government to continue to pay the wages of employees who are not actually working?
The furlough scheme has built up an expectation that the government will always step in to pay the wages of people who find themselves out of work through no fault of their own. It suits workers because it means they no longer face a cliff-edge of redundancy: rather than be put on Jobseeker’s Allowance they might continue to receive 80 per cent of their former wages. Furlough suits employers, too, because it makes it far easier to make people redundant: rather than having to go through the emotionally difficult task of wiping out someone’s livelihood, bosses can park them in furlough and hope they start to look for opportunities elsewhere. And of course, it suits the government because it keeps the official unemployment figures down – much like the misuse of incapacity benefits by Mrs Thatcher’s government in the 1980s.
There will never be a time when it will be anything other than politically difficult to end the furlough scheme. Many businesses will continue to suffer thanks to long-term changes in spending patterns provoked by Covid-19. High Street retailers, city centre coffee bars and many others may never recover. There will never be a moment when everyone can say everything is back to normal. Moreover, there will be businesses which are hit by other government policies, such as climate change, which will expect the same treatment as businesses hurt by Covid restrictions. There will be intense pressure from unions and employers alike to keep the furlough scheme going ‘through the recovery’ – a recovery which, as with the recovery from the 2008/09 crisis, will never quite be over.
Furlough is like a universal basic income through the back door. It is ruinously expensive – having already cost £47 billion by last October. It is open to fraud – HMRC told MPs last September that it believed one in ten claims were false. But most damaging of all, furlough undermines the employment market. It delays people seeking alternative employment, or retraining, because they are led to believe they have a job to go back to. By doing so it will starve growing businesses of labour that is being shed by shrinking ones.
What the Chancellor should have done is to have allowed furlough payments as long as businesses were forced to close by law. The moment a company was allowed to reopen its doors, all furlough payments should have been stopped. Rishi Sunak missed the opportunity to take this firm line – and as a result he will find it politically extremely difficult ever to end the scheme.