22 July 2020

Why the government should consider extending the furlough scheme

If medical advances mean that society no longer needs to adapt to a prolonged period of social distancing, the case for ending the scheme in October becomes weaker.

By Stephen Bush

LONDON, ENGLAND - JULY 21: Prime Minister Boris Johnson sits beside Chancellor of the Exchequer Rishi Sunak during a face-to-face meeting of his cabinet team of ministers, the first since mid-March, at the Foreign and Commonwealth Office (FCO) on July 21, 2020 in London, England. The meeting in the FCO will take place in a ventilated room in the Foreign Office large enough to allow ministers to sit at least one metre apart. (Photo by Simon Dawson - WPA Pool/Getty Images)

Rightly or wrongly, the Conservative government clearly believes that medical science will have advanced enough by Christmas to make social distancing a thing of the past. Boris Johnson has said social distancing could end by then – Matt Hancock has said that a vaccine could be available at that time.

This is certainly possible: not just because of the positive news from vaccine trials in the UK and elsewhere in the world, but also because our medical understanding of how to treat the novel coronavirus is advancing all the time.

[see also: The race for a Covid-19 vaccine]

But this makes it hard to defend the government’s timetable for ending the Job Retention Scheme, or the furlough as it is commonly known. The policy logic for ending the furlough in October is that large parts of the economy aren’t viable in an era of physical distancing, and that our society and economy need to adjust to prolonged anti-Covid-19 measures. Businesses built on sustaining audiences from the pre-crisis era need to collapse or move to a different way of operating, while jobs servicing the new world of reduced social contact need to emerge.

There’s nothing wrong with this case. (My belief that the world was likely to be living with the novel coronavirus for some time is why I thought that the central issue preoccupying policymakers, here and across the globe, was how to get more out of the lockdown economy rather than how to get out of lockdown.) But if you want to end the furlough in these circumstances, you need a more generous welfare state than the UK currently has, because a lot of people will be living off Universal Credit while the economy adjusts.

But the policy logic of a swift end to the lockdown economy – where medical advances allow social distancing to end sooner rather than later – means that you should extend the furlough scheme, because it freezes the pre-lockdown economy in carbonite, or at least, does as good a job of that as possible. There’s little point, other than to cause a lot of personal misery and potentially to do major damage to the government’s economic standing, in inflicting an economic shock in October if you will be able to end Covid-related restrictions in January, February or indeed March of 2021.

If you aren’t worried about the cost of the furlough, it doesn’t matter if you extend it a little longer. If you are worried, the goodish news is that the UK’s debt-to-GDP ratio is already troublingly high (99.6 per cent) and that a few more months of increasing it for the parts of the economy that cannot operate with physical distancing is not going to touch the sides – particularly as the consequences of ending the furlough would also add to the UK’s debt pile.

Of course, this isn’t a decision the government needs to take now – it just needs to be open with businesses that it might extend the furlough scheme if the news on medical developments is positive. But the government’s belief that scientific developments will stop coronavirus ought to have a greater role in deciding when to end the furlough than it currently appears to have.