Older workers and Londoners face highest risk as furlough scheme ends

As the furlough scheme comes to an end, older workers and Londoners are at the greatest risk.

Older workers and Londoners are at highest risk of long-term joblessness as the UK’s furlough scheme closes on Thursday, with economists predicting a modest rise in unemployment because workers who are made redundant will not necessarily be able to fill vacancies in areas where there are big shortages.

The job retention scheme supported about 9m workers at the peak of the crisis, an unprecedented state intervention that prevented mass job losses and supported household spending — at a cost of almost £70bn. As a result, unemployment stood at just 4.6 per cent on the latest official count.

But 1.6m people were still partly or fully furloughed at the end of July, with surveys suggesting that about 1m — concentrated in industries such as aviation, tourism and the cultural sector where activity has not fully recovered — could still be on the scheme as it closed.

Column chart of employments supported by the  Coronavirus Job Retention Scheme (million) showing more than 1.5m workers are still furloughed

Uncertainty over the fallout for workers as subsidies end is the main reason why policymakers at the Bank of England have held off raising interest rates, despite evidence that price pressures are intensifying and inflation is set to rise further above target in the short run.

Andrew Bailey, governor of the Bank, this week said it was “a big puzzle” to see such high levels of vacancies, while so many people were still furloughed or out of work — adding that different explanations would have “quite different” implications for growth and inflation.

One possibility is that employers have been hoarding labour, because they still expect demand to recover. This could mean most furloughed workers will return to their previous jobs, if they have not already found a second job elsewhere, as was allowed under the terms of the scheme.

Samuel Tombs, at the consultancy Pantheon Economics, believes this could still leave many workers underemployed, if their employers brought them back on shorter hours. “We still think the wind-down of the CJRS will hurt,” he said.

Bar chart of composition of furlough and employment, June/July 2021 showing Workers in hotels/restaurants and in construction are more likely to still be furloughed

A second possibility, however, is that furloughed workers find they do not have a job to return to and do not fit the jobs open in sectors where employers are struggling to recruit — because they live in the wrong place or cannot easily retrain. This could lead to higher unemployment at the same time as labour shortages and faster wage growth.

The latest independent forecasts, published by HM Treasury, are for unemployment to rise to 5.2 per cent in the fourth quarter of 2021.

The Institute for Fiscal Studies warned on Thursday that Londoners were among those most vulnerable to long-term unemployment, since the capital — still affected by the slow return of office workers — had higher furlough rates and lower vacancy rates than elsewhere in the country.

“There needs to be a huge concerted effort led by the government to stop London from becoming the unemployment capital of the UK,” said Nick Bowes, chief executive of the Centre for London.

Older workers also look vulnerable — more so than the young people who were hardest hit at the start of the pandemic, the IFS warned, noting that only a third of those over 50 who had lost jobs during the pandemic had managed to find a new one within 6 months.

Unions and charities have accused the government of leaving workers in the lurch, by ending wage subsidies at the same time as ending the temporary uplift to benefits — while households face higher energy and tax bills. But Rishi Sunak, chancellor, said furlough’s end “in no way means the end of our support”, with policies still in place to help young people into work, adults upgrade skills and smaller businesses fund apprenticeships.

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