The government risks unleashing another surge in unemployment if it withdraws its income support measures too soon, according to a think tank.
Millions of workers have been put on furlough since Rishi Sunak, the chancellor, announced in March that the government would pay the salaries of those put on temporary leave.
Under the job retention scheme, the government pays 80 per cent of the salaries of furloughed workers, up to a maximum of £2,500 a month. By keeping workers linked to their employers the government hopes to prevent widespread unemployment.
Demand for the scheme has been great, as many non-essential businesses have been forced to temporarily close or scale back their operations. According to the Office for National Statistics more than a quarter of the workforce is on furlough.
With so many reliant on the programme, the Resolution Foundation said the support must be eased gradually. The programme was initially intended to expire at the end of this month. However, it has been extended to the end of June and ministers are reportedly considering another extension.
The foundation suggested a system of partial furloughs, whereby employers are asked to contribute to a portion of their employees’ salaries.
“The priority should be to increase the incentive for firms to reopen by phasing in employer contributions towards the cost of furloughing,” the report said. “Once the easing of the lockdown is well established, firms should be required to cover at least 10 per cent of furloughed workers’ wages.”
It said that the scheme, in its diluted form, should remain in place until September. This would cost about £16 billion from July onwards, taking the total cost of the scheme to about £48 billion.
Torsten Bell, chief executive of the foundation, said:” “The government should reject calls to swiftly end the job retention scheme. Moving too quickly could spark a huge second surge in job losses at a time when unemployment already looks set to be at the highest level for a quarter of a century.
“The scheme cannot last forever, however. It should be phased out gradually, with a longer timeframe for the hardest-hit sectors.”
