Last minute extension of furlough undermines its effectiveness

Extending the Coronavirus Job Retention Scheme for the upcoming national lockdown will provide an essential lifeline for workers, but the way it was announced will reduce its ability to protect jobs.

Right at the end of the Prime Minister’s Halloween announcement of the second national lockdown came a surprise: the Coronavirus Job Retention Scheme (CJRS) is to be extended. On the scheme’s very last day, barely a week after the second overhaul of its planned replacement – the Job Support Scheme – this announcement became the fourth policy change in just five weeks.

So what has changed?

Instead of ending in October, the CJRS will continue until at least 2 December (and possibly longer if the lockdown is maintained). The extended scheme will resemble the version from August. No minimum hours of work are required of staff, the employer contributions are limited to National Insurance and pension contributions so don’t include wages for unworked hours, and incomes are topped up to 80% of usual pay (capped at £2,500 a month).

For employers, this CJRS is very similar to the Job Support Scheme (JSS) that had been expected to come into effect in November (but is now postponed). There are two differences. First, they no longer need to contribute towards 5% of unworked wages so the scheme is cheaper to use. Second, all businesses are now eligible regardless of location or the restrictions imposed on them. For workers, the extension means they will receive 80% of their lost earnings, rather than the 67% on offer through the JSS.

Clarity is still needed over support for those caring for children or voluntarily shielding

Given the scale of disruption to hit the economy as lockdown begins on Thursday, this extension will provide essential support for millions of workers. But two significant gaps in support need to be addressed. Those unable to work at points this winter because of caring responsibilities, or a return to shielding, do not seem to be covered by the extended CJRS scheme.

Those clinically vulnerable to COVID-19 face a very difficult choice between income and health. Despite most children being back at school, it only takes one child with symptoms to create a childcare nightmare that can last several days. As we enter the 9th month of COVID-19 many parents will be running out of leeway with their employers to deal with this, especially those who cannot work from home. Both groups of workers should be covered by the extension of CJRS, as they were by the original scheme in the first lockdown.

For most furloughed workers living in poverty, the CJRS does a good job of maintaining incomes

Workers protected through lockdown by the CJRS will receive most of their wages and those on the lowest pay will also have their incomes topped up by Universal Credit. The significance of this support should not be underplayed. Providing more than 90% of income to many workers with few or no hours is a bold and compassionate intervention from the Government. The £20 a week uplift in Universal Credit and Working Tax Credit has been essential to this.

Even so, there are some families in poverty for whom being furloughed will result in a significant drop in income. The benefits system is not as effective at topping up incomes for furloughed workers without children and those who own their own home. The examples below highlight the different proportions of income received by different families when covered by the CJRS. For those living in poverty with stretched budgets, a sustained fall in income of this size is incredibly difficult, and is leading to families cutting back on essentials like food and heating, or falling into debt.

Examples of income change for different families covered by the CJRS

Share Of Income (After Housing Costs) Under CJRS
Single parent with one child, renting in South Manchester 97%
Single adult, owns home in South Manchester 66%
Single earning couple with one child, owns home in South Manchester 96%
Single earning couple with three children, rents in South Manchester 98%

JRF calculations. All example families live in Southern Greater Manchester and usual gross earnings are £1,100 a month (as in the Chancellor’s own example). Housing costs are approximated as the LHA rates for the area. While covered by the extended CJRS, earnings are 80% of usual wages as the earner is assumed to be working 0 hours.

The failure to have clear, consistent policies will have cost jobs

While the focus mostly falls on what support has been made available, how it has been announced also matters. Most businesses plan how many workers they need weeks or months in advance. Policies designed to influence these decisions should account for this. Instead, the last couple of months have been characterised by constant updates and changes to policies designed to protect jobs over the winter.

For many workers, both the last iteration of the JSS and the latest news of the CJRS extension through lockdown will have come too late. They will have already lost their jobs because their employers anticipated a continued reduction in trading capacity and less generous support to retain jobs through the winter.

Three urgent priorities to provide certainty for businesses and protect jobs

Very soon the Government needs to set out its plan for economic support from December onwards. Not knowing how long lockdown will last, or the local restrictions that will need to follow, does not mean a longer-term plan is impossible.

The Chancellor’s failure to provide clear policy for different COVID-19 scenarios has led to confusion, hampered businesses’ ability to plan, and undermined confidence in his own announcements. People have lost their jobs as a result. To prevent this happening again, he should:

  1. Enable employers to furlough employees who are unable to work due to childcare or health vulnerabilities to ensure they are protected.
  2. Set out the support that will be available to retain staff in the event of any further national lockdowns in the six months from 2 December. The priority is to clarify the cost employers will face, for example, will there be employer contributions towards unworked hours if furloughing staff full- or part-time after this initial month of lockdown?
  3. Make use of the next four weeks to provide full details of the economic support packages available in various exit scenarios from a National lockdown, such as the return to a regional tiered approach. It would be inconsistent to provide less generous support to businesses and workers affected by regional restrictions which, to all intents and purposes, have the same effect as those enacted on a national basis. Businesses in Tier 3 experiencing a very significant fall in custom should receive the same support as those legally forced to close.