The £70bn furlough scheme that was put in place to help support jobs and businesses during the Covid-19 pandemic will end this week.
As of the end of July, there were 1.6 million people still on the furlough scheme in the UK, according to government data, although this is significantly lower than the 9 million that were having 80% of their wages covered at the peak of the pandemic in May 2020.
At the same time, recent ONS data showed unemployment in the country has fallen to 4.6%, with vacancies hitting a record high of more than one million during the summer.
Sudden spike in unemployment?
But the end of the furlough scheme has prompted concerns as to whether those still on furlough will have a job to return to or will find themselves searching for something else – causing a rise in the official unemployment stats for the UK and putting additional pressure on households at a time of rising food and fuel prices.
“Furlough has been the backbone of the labour market throughout the pandemic, saving millions of people’s jobs. But there were still 1.6 million staff on furlough at the end of July, and the scheme’s scheduled end could result in a sudden spike in unemployment,” says Jack Kennedy, UK economist at Indeed.
“In workers’ favour is the backdrop of high demand for staff in many sectors, with some industries increasing salaries and offering other incentives as they struggle to recruit. The fact that vacancies have risen in all sectors suggests that many workers will be able to find work more easily, and even be choosy about their next role.”
A delicate balance
For Quilter Investors portfolio manager Paul Craig, despite the positive unemployment data, the jobs market is still very much in recovery and remains below pre-pandemic levels.
He has also voiced concerns over the widely reported skills shortage in the UK, which has most recently had an impact on the delivery of petrol and diesel to garage forecourts across the country.
“Many industries [are] reporting hiring difficulties and lack of available labour. With Covid following close on the heels of Brexit there is uncertainty to whether the UK will be able to match those seeking work with the jobs that are available,” he explains. “The new national insurance levy also adds an additional cost to employers, and as such we remain unsure whether this could also cause businesses to review or temper future hiring needs.”
He adds: “The economy has undergone a dramatic shift almost overnight and it is important the government responds by making training and upskilling available to help fill these voids. It is important that the labour market remains tight as the government is clearly hoping disposable incomes are spent and the economy is driven forward as much as possible in case further cases emerge.
“The latest GDP figures also showed an economy that was struggling to release the shackles with subdued growth following the relaxation of restrictions. It is important that the labour market remains tight as the government is clearly hoping disposable incomes are spent and the economy is driven forward as much as possible in case further cases emerge.”
Scott Gallacher, director at Rowley Turton, shares these concerns, adding that the UK economy could experience a “huge shock” when the furlough scheme ends.
“Although 1 million job vacancies mean the economy looks in great shape, the 1.3 million people currently furloughed will be in other sectors with different skills,” he says. “So, while a furloughed theatre actor might be able to play the part of a lorry driver on stage, they won’t have an HGV licence and can’t deliver fuel to a petrol station this weekend. The disconnect between the jobs going and skills required to do them could prove significant.”
Plugging the skills gap
The Association of Professional Staffing Companies (APSCo) has warned that the skills gap is only going to stretch wider unless quick action is taken to encourage more independent professionals from outside the UK to relocate here for work.
APSCo’s recruitment trends data shows that permanent and contract roles saw marked increases year on year in August, up 47% and 79.5% respectively, but companies across the country are still reporting a dearth in talent.
The government has pledged to support skills development over the longer term, and over the weekend announced that 10,500 lorry drivers and poultry workers will be granted temporary UK work visas to limit the disruption in the run up to Christmas.
“The challenge for government is to put its money where its mouth is and demonstrate in practice how we can fill vacancies by investing in our domestic workforce in a post-Brexit world,” says Institute of Directors chief economist Kitty Ussher. “The government now needs urgently to roll out and ramp up lifelong opportunities to retrain, including widening the scope of training provided through the apprenticeship levy.”
