New data highlights the need for a lifeline beyond the furlough scheme

The furlough scheme has been a vital lifeline, but the latest figures show the huge economic shock facing sectors where many workers were already in poverty.

The scale of the economic shock caused by COVID-19 was confirmed last week, and it was big. The only consolation was that it was entirely expected, and entirely necessary to deal with an urgent health crisis. In April, GDP fell 20.4%, and that was after a 6% fall the month before.

Thankfully, we do not have to see the full impact a shock of this size has on unemployment – yet. For now, the Coronavirus Job Retention Scheme (CJRS) is supporting 8.7 million UK jobs, protecting many people from unemployment, and keeping their heads above water.

The sectors furloughing the most staff have high poverty rates

New data published by HMRC now shows take-up of the CJRS by sector. It was, of course, the businesses most affected by restrictions that have furloughed more staff.

In the accommodation and food sector 1.4 million jobs are now supported by the scheme – that’s equivalent to 60% of its jobs. The sector contracted 88% in April – the largest of all services – as cafes, restaurants and hotels were ordered to close. Retail and wholesale have contributed an even larger number of workers to the furlough totals – 1.6 million workers, equivalent to just over a third of jobs.

Number of employments furloughed, as of 31 May 2020

These two sectors also had some of the highest rates of poverty of all sectors as the crisis hit. Nearly a quarter (23%) of workers in accommodation and food were already swimming against the tide of poverty and 17% of retail workers were in this position. If all workers within the sectors had an equal chance of being furloughed that would mean up to 270,000 workers in poverty are furloughed in retail, and 320,000 in accommodation and food. The numbers may be even higher given there is evidence that the lowest paid are most likely to be furloughed.

Poverty rates (after housing costs) by sector, before COVID-19 crisis
Sector Poverty rate
Accomodation and food 23%
Business admin and support 19%
Wholesale and retail 17%
Transportation and storage 16%
Construction 14%
Health 12%
Manufacturing 10%

Source: JRF analysis of the Family Resources Survey (2018/19) Note: poverty rates will have changed during the crisis, this table gives the latest poverty rates available when the crisis hit.

As the CJRS ends, unemployment could hit the most vulnerable in significant numbers

Those in poverty are especially vulnerable when faced with job losses, as they are less likely to have savings to help cover unplanned costs or gaps in income. The furloughing of many of these workers is providing essential protection for now, and keeping their incomes close to their usual levels despite the huge economic shock taking place. This is of course incredibly good news.

But even with the scheme in place, it hasn’t been able to give a lifeline to all those in poverty and many have already become unemployed in these industries, or lost incomes through reduced pay or hours.

Looking ahead, the CJRS is not currently set to last beyond October. Unfortunately, it’s very unlikely economic activity will have recovered by then.

In the best-case scenario, where restrictions continue to gradually ease and cases do not accelerate upwards again, economic activity may still be slower than usual at this point in the year. Without a vaccine, some form of social distancing measures may remain in place, and those most vulnerable continue to observe stricter guidelines. In the worst-case, the restrictions could revert to more severe levels, causing a repeat of the economic shock seen in April.

It's incredibly uncertain what will happen, but either way, it's very likely there will be some postponed unemployment in the sectors most affected. The changes to the CJRS from August may trigger redundancies even earlier. Given the prevalence of poverty – especially in accommodation, food and retail – this could have huge consequences for workers and their families. Many will be pulled deeper into poverty, while others will be pushed into poverty for the first time.

This emphasises yet again why getting the end of the furlough scheme right is so important. JRF has previously published our recommendations for what should be prioritised as the scheme draws to a close, and for the complementary labour-market policies that need to be in place to help move the furloughed and unemployed into alternative jobs or training. Just as we've protected each other from the effects of the first stage of this pandemic, it is only right that as a society we give those of us struggling to stay afloat in the economic slipstream the lifeline they need to weather the next stage of this storm.