Extend and reform Coronavirus Job Retention Scheme to avoid ‘second wave’ of unemployment and help Britain back to work

8 May 2020

The Coronavirus Job Retention Scheme must be extended for three months and reformed in order to prevent a ‘second wave’ of unemployment and support a phased return to work, according to a leading think tank.

Full report.

The report by Learning and Work Institute finds the scheme has been successful in limiting job losses and protecting incomes. While it has been costly – at around £14 billion a month – not acting would have led to a far larger increase in unemployment and to lasting damage to the economy. This would have meant an additional bill for out of work benefits of up to £5 billion a month, a deeper recession due to lower household spending, and a slower recovery due to more business failures and the ‘scarring’ impact of long term unemployment.

Put in place to protect jobs and incomes during the crisis, the Coronavirus Jobs Retention Scheme (CJRS) covers the cost of 80% of furloughed workers wages, up to a limit of £2,500 a month. The scheme – which is due to run up until the end of June – has seen over 800,000 employers furlough some 6 million workers. The report finds that one in five adults are now either furloughed or unemployed.

With the government set to announce an easing of the lockdown, there has been growing pressure from some quarters on the Chancellor to bring the CJRS to an end. However, the report warns with social distancing likely to have to continue for at least the rest of the year, and with the crisis leading to potentially lasting changes in consumer behaviour, the economic recovery is likely to be gradual, and to vary from sector to sector. Some businesses will be unable to operate at pre-crisis levels, or unable to open at all. In this context, a rapid withdrawal of support risks leading to a ‘second wave’ of unemployment if support is withdrawn rapidly.

The report calls on the Chancellor to:

  • Extend the CJRS for three months to the end of September;
  • Reform the CJRS to allow for short time working, giving employers the ability to bring staff backed in a phased way;
  • Plan a gradual withdrawal of the CJRS from September, working with businesses and unions on a sector by sector basis;
  • Make support beyond September conditional on commitments to minimum standards on pay and job quality – such as paying the Living Wage – or on the state taking an equity share in order to recoup some of the cost.

This would cut the cost of the CJRS to an estimated £7 billion a month; only marginally higher than the cost of unemployment benefits in the absence of the scheme.

Irrespective of how long the CJRS continues for, it is likely that hundreds of thousands of furloughed workers will not be able to return to their jobs in a very different post-crisis economy. The report therefore calls for a furloughed worker support scheme, with personalised information advice and guidance, retraining grants, a jobs-guarantee to prevent long-term unemployment, and a further increase in Universal Credit to strengthen the safety net.

Stephen Evans, chief executive of Learning and Work Institute, said;

“The Coronavirus Job Retention Scheme has been successful in limiting the impact of the virus on jobs and incomes, and it has put us in a better place to bounce back from this crisis.

“While it can’t continue indefinitely, a sudden withdrawal in support risks leading to a second wave of unemployment. The Chancellor should extend the scheme for three months, reform it to support a gradual return to work, and plan for a phased withdrawal of support in the autumn.

“The post-crisis economy will be very different, and we need to recognise that hundreds of thousands of furloughed workers may never be able to return to their jobs. So we need to be ready to support these workers through investment in skills, a jobs guarantee and a more generous safety net.”

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