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How end of furlough scheme will impact UK job market

Rishi Sunak
UK chancellor Rishi Sunak extended the furlough scheme until 30 September. Photo: John Sibley/WPA Pool/Getty

Since the UK's job retention scheme was announced in March 2020, 11.6 million employees have been furloughed, with almost 9 million people on the scheme during April and May 2020, at the height of the COVID-19 pandemic, according to government statistics.

The furlough scheme is due to come to an end on 30 September 2021, so how will this impact the UK job market?

Around 1.4 million people are still on furlough, with 600,000 of these on fully furloughed, according to the most recent data from the Office for National Statistics (ONS) covering the period 23 August to 5 September.

Assuming the number of people on furlough continued to fall in September at the same rate as over the summer, then around 1 million people could still be on either full or part furlough when the scheme ends.

Official forecasts throughout the pandemic have predicted that unemployment will rise after the end of the scheme. However, this may not be the case, according to a new report by think tank Resolution Foundation.

Employers of fully-furloughed workers will have been paying contributions towards wages for three months by the end of the scheme (and had been doing so for two months when the latest ONS survey was conducted). This investment suggests it is unlikely that they would make all of their fully-furloughed staff redundant after the scheme ends.

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Resolution Foundation also said the risk of unemployment is "clearly much lower" for those on partial furlough who are currently working for at least some of the time.

However, there is still a risk of a modest rise in unemployment, particularly in sectors like travel and aviation which are still reeling from the effects of the pandemic.

People's personal finances will be affected too as the planned cut to Universal Credit on 6 October — which will bring the real value of unemployment benefit to its lowest level since the early 1990s — will mean that those who do become unemployed when furlough ends will receive £20 less a week in unemployment benefit than if the uplift was maintained.

The hit to family incomes when employees moved from work to benefits in the UK was much larger than that when individuals moved from work to the government’s COVID-19 support schemes, according to the report. The typical family income replacement rate would have been 50% for a move onto benefits (and was only 53% after the £20 a week uplift) compared to 90% for workers who were furloughed. Therefore, workers who do become unemployed when furlough comes to an end could experience a significant drop in income.

Resolution Foundation said it is "important it is to protect families from income shocks associated with job loss."

Furthermore, some employees who are still fully-furloughed may have been away from their jobs for a significant period of time. Some 60% of those fully-furloughed in May 2021 had been so for seven or more months, and half of those fully-furloughed then had been so for 10 or more months, Resolution Foundation found.

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The report said that long periods out of work can have "damaging effects" on subsequent job prospects and future earnings.

In recognition of this, Jobcentre Plus advisers are able to fast-track formerly-furloughed workers onto the government’s Restart scheme which usually requires people to have been unemployed for at least 12 months using "discretionary referrals."

The job retention scheme initially helped younger workers at the start of the pandemic, but it is older workers who are now more likely to be furloughed. As ofuly 2021, just 5% of 18-to-24-year-old employees were furloughed compared to 6% of employees in their early 60s, and 8% of employees aged 65 and over.

This is a "cause for concern, given the evidence on the challenges that older workers face when entering unemployment," Resolution Foundation said.

Previous Resolution Foundation research found that older workers take longer to return to work after being made redundant, and suffer a larger pay penalty when returning to work.

If a higher share of older workers decide to take early retirement after the furlough scheme comes to an end, this could be a lasting and damaging labour market supply shock from COVID-19 pandemic.

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