1. Money

    Matthew Lynn

    Was furlough the worst £70 billion ever spent?

    Paying people to sit at home and do nothing is a monumental waste of taxpayer money

    Was furlough the worst £70 billion ever spent?
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    Concorde obviously. The Iraq War perhaps? Or Scottish devolution? It is not hard to come up with a list of really terrible ideas that the British government has wasted money on over the last 50 years. Even so, and despite some tough competition, we now have a fresh contender. It looks as if the furlough scheme will top them all.

    The scheme ends today, with roughly a million people still collecting a slice of their wages from the Treasury. The total bill is set to come in at around £70 billion. To put that in context, for the same money we could have tripled spending on policing and just about eliminated crime. Or we could have suspended student loans for four years and made university free again. Or we could have taken a year’s holiday from business rates and council tax, which would have helped out lots of small businesses, as well as giving everyone else some extra money. 

    We could have done all kinds of stuff and while you could debate the merits of each one, they all have something to be said for them compared to what we actually did with the money — which was to pay companies to keep people at home doing nothing, while at the same time the labour market was desperately short of people.

    In fact, there were two big problems with the furlough scheme. First, it went on for far too long. Sure, it was right to support firms and individuals during the first lockdown. We hoped it was just a three or four-week emergency and afterwards everything would get back to the way it was before. By the time of the second lockdown, it was clear that businesses were adjusting, that the way we all worked, and made things, was changing, and it was no longer necessary. Next, and even worse, it prevented the market from working. Lots of furloughed staff won’t get their jobs back, but, given the shortages elsewhere, they could easily switch to something better paid. Most furloughed staff from the autumn onwards were concentrated in low-skilled, low-paid professions such as hospitality. Many of those people could have moved into booming sectors such as logistics and food production where employers are struggling to fill all their vacancies. But while they were paid to stay at home, there was no incentive to do so.

    In fact, it would have been far better to put in place generous income support for anyone laid off during the pandemic and then let the market work out which jobs were needed and which ones weren’t. In the United States, where stimulus cheques were sent out instead, there was a spike in unemployment, swiftly followed by a surge in new jobs. If the UK had tried something similar, we would be in a far better position now and with far less debt. Supersonic jets and wars in the Middle East are starting to look cheap by comparison.