MPs have lent their weight to business and trade union calls for the government to continue wage support when the furlough scheme ends in October, urging chancellor Rishi Sunak to consider a “targeted” extension to prevent rising long-term unemployment.
Boris Johnson has repeatedly ruled out any extension of the job retention scheme, with the UK prime minister saying again this week that it would do no good to keep people in “suspended animation” in jobs that were no longer viable.
But the cross-party House of Commons Treasury select committee said in a report on the economic impact of the coronavirus pandemic, published on Friday, that a large proportion of businesses in the sectors most affected by social distancing might have a long-term future.
The £1,000 “job retention bonus” the government is offering as an incentive to businesses who retain furloughed employees was likely to prove a waste of money, they said, since most of the funds would be spent on workers who would be kept on anyway, the MPs said. Instead, the chancellor should “carefully consider” whether a targeted extension of the scheme, or other targeted support, might be needed.
“The key will be assisting those businesses who, with additional support, can come through the crisis as sustainable enterprises, rather than focusing on those that will unfortunately just not be viable in the changed post-crisis economy,” said Mel Stride, the committee’s chair.
Some 11 per cent of the UK workforce were on partial or full furlough in mid-August, according to a survey published on Thursday by the Office for National Statistics.
With government-backed loan schemes set to end this autumn, the committee also called for the government to set out plans within three months to help small businesses pay back loans they had taken out during the pandemic, saying there was a risk of the recession being prolonged because overindebted businesses would not recruit or invest.
“It remains unclear how the government expects businesses to pay back loans in the future,” the report said, noting that many companies were unlikely to make up the revenue they had foregone.
One option for small businesses might be to convert loans into a form of contingent tax liability, where the level of repayments would be linked to a company’s financial health — as with student loans, where repayments are linked to graduates’ earnings. For larger businesses the Treasury could consider investing in equity stakes, the committee said.
Mike Cherry, chairman of the Federation of Small Businesses, backed the proposal for a student-loan type approach to repaying loans. He also called for the government to extend the November deadline for applying to the bounce back loan scheme, which offers a 100 per cent government guarantee to small business loans, given continuing economic uncertainty and the delays many had faced obtaining loans.
The MPs also urged Mr Sunak to extend time-limited changes to the welfare system, brought in at the start of the pandemic, which have made benefits more generous and widened eligibility; and said the government should consider whether the level and coverage of statutory sick pay was adequate.
They cautioned against raising taxes too early to pay for the huge expansion of government spending since the start of the Covid-19 crisis, saying this would “stifle” the recovery. They also underlined the need to give local authorities enough support to respond quickly to local lockdowns.
But they said the chancellor should use the Budget to set out an “initial road map of how he intends to place government finances on a sustainable footing” — and that this could include lifting the “triple lock” guaranteeing increases in state pension payments, even though this would mean breaking a manifesto commitment.
The committee also called for the government to define the goals of its levelling up agenda — clarifying whether it wanted to close the gap in productivity, earnings, health and educational outcomes, or all of these. The promise to eliminate regional inequalities was already at risk, they said, because the coronavirus crisis had made it necessary to help all areas, and had led ministers to focus infrastructure investment on “shovel ready” projects rather than on those most likely to help lagging areas.
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