Last August, Rishi Sunak was so confident that Covid was banished he said the furlough had to go. About 4 million workers would have either been forced to return to their jobs or found they had no job at all. “It’s wrong,” Mr Sunak told the BBC, “to keep people trapped in a situation and pretend there is always a job that they can go back to.” But it was Mr Sunak who was wrong. The pandemic was not over. A new, more transmissible Covid variant would soon appear. By October 2020 the furlough was back. Such an experience ought to chasten a politician. But that does not appear to be the chancellor’s style. He talked last week about the economy “bouncing back”. The furlough, he says, will disappear by the end of September. Is Mr Sunak once again tempting fate?
Britain has eased pandemic restrictions, but the country is not out of danger. A more virulent Covid strain could emerge. Mr Sunak, however, is betting that vaccine coverage and booster shots will allow Britons to live with the virus. The chancellor can also draw comfort from the Bank of England, which believes that mass layoffs have been averted and unemployment has peaked. The first week of August saw 1.7m active job ads, while 1.9 million people are on furlough. For some this will mean higher pay and better benefits. It may just be catchup. Half of British workers suffered a real-terms pay cut last year despite a sharp rise in average earnings.
Would a hasty withdrawal of government support that had helped firms retain staff be useful now they face higher debts and uncertain future sales? The answer is surely no. A better solution would be to rethink the way the labour market operates. The Trades Union Congress makes a sensible suggestion for a permanent short-time working scheme to be put in place as a post-pandemic legacy. Britain’s workers face a disruptive future featuring post-Brexit dislocation, net zero and a Covid hangover. Yet the UK is one of the few developed nations to have no permanent short-time working scheme to deal with periods of industrial disruption and weak demand.
Under such a scheme, companies that could show they were restructuring their business and wanted to keep staff could ask the state to pay 80% of salaries for a short period. Experiences of countries such as Germany and Japan suggest a UK scheme might cost about £5bn annually. This would be an investment in the British workforce.
If Britain has really got over the worst of the pandemic it should build what Harold Wilson called the “social infrastructure required for industrial change”. Nations rely on “labour reallocation” to transition from one economic state to another. Covid will change where and how we want to work, and where we are able to travel. Businesses have to attract and train new workers. Workforce shortages are very real. But people don’t choose unemployment, with its scarring susceptibility to malnutrition, illness and mental stress. Karl Marx’s reserve army of the unemployed is full of conscripts, not volunteers.
Gavin Kelly, the chair of the Resolution Foundation, points out that Wilson’s social infrastructure was built on new benefits, more training and university expansion. He says there was a 44% rise in labour reallocation between industrial sectors in the decade following 1968 compared with the one that went before. By this measure, contrary to conventional wisdom, these 10 years marked the most successful peacetime economic transition of the 20th century. The state helped workers find blossoming new jobs when obsolete ones withered away.
Today, more public sector investment, a job guarantee for the long-term unemployed and mini-furlough schemes could help kickstart and smooth the process of creative destruction. Britain has lower labour market dynamism, geographic mobility and workforce training than at the turn of the millennium. It would be a mistake, Mr Sunak, to abandon the lessons of the pandemic for the embrace of failed certainties.