Why the unease over furlough extension?
WHATEVER opinion you may hold on 2020 as a year, it’s not been without its talking points. The last few weeks have added some more to the obvious suspects, with my own current favourite being which will come first: clarity on the US Presidential election, or clarity on the terms by which we will work and trade with our European friends from the 1st of January 2021?
Currently, the odds favour the Europe question, only because it doesn’t have an equivalent scenario of a toddler tantrum that can hold on to the furniture until January 20. Ours only have until the December 31.
One significant talking point for industry and the economy was much more of a surprise and, like most outright surprises, it is genuinely welcomed, with just a hint of unease alongside. To say that Chancellor Rishi Sunak’s announcement that the job retention or furlough scheme would be extended to March was unexpected would be an understatement. Time and again we were told that this was a blunt instrument, that not every job could be saved, but instead we were treated to a return to furlough without the sliding scales of diminishing ratio of support, at least until January when this will be reviewed.
In fact, there was more good news, with removal of rules that eligibility would be based on the employee having been previously furloughed, and provision to re-employ staff made redundant after September 23.
Our reasons for welcoming this unexpected U-turn are easily understood. In our sector we share the continuing impact felt by every part of the economy associated to the absence of demand. In aerospace, oil and gas and many others the orders that were on hand in March when the initial public impact was felt have long been fulfilled, and future orders remain well below where they need to be.
The extension of support allows partial but welcome financial relief, retention of key skills and a chance to see out what will be a difficult winter ahead, with the hope that spring will bring a natural reduction in cases, alongside an engineered reduction through the application – hopefully – of a vaccine.
Retention of those key skills is a critical long-term benefit here, particularly considering the latest statistics for uptake of modern apprentices released by Skills Development Scotland last week.
These showed a shortfall across all sectors of more than 10,000 new starts compared with the same period in 2019, and for the engineering sector, an 80% reduction resulting in more than 800 future skilled employees who are likely to be missing to the sector in four years’ time, a horizon by which even the most pessimistic might expect demand to have returned. This underlines, as if we were in any doubt, the disproportionate impact on young people that recessions invariably bring.
So clearly the extension is not only welcomed, but also essential, so where is the unease?
The first is the obvious one, the first rule of business and home finance: monies borrowed must be repaid, and the higher the level of debt the harder that becomes. The UK’S debt to gross domestic product ratio tipped past an eye watering 100% at the end of July, and it’s hard to imagine that the new extension will have driven that in anything other than a negative direction.
This is not a new concern, it has been with us all year, and I rationalised that as concerning but without alternative at the time, but this leads to the second source of unease. When the furlough scheme was announced in March, it was, we believe, a response formed
“on the hoof”, a pragmatic and rapid response to an unprecedented crisis, not perfect, but needed and timely. Seven months on after repeated assertions that this was a scheme that had its time and place, when the UK Government had to face difficult public health decisions to manage the increasing rate of the virus, what was the plan B for the economic support for a second lockdown?
Well, basically it was plan A, the same scheme formed under immense time pressure, only with the parts least liked by businesses changed to match what they had asked for all along. Where was the use of seven months’ time to plan, of consideration of the merits of a sectoral approach, ideas to reduce the estimated 10% of fraudulent claims under the scheme? Nowhere to be seen, and that, given that unease at a mounting debt that we want to be sure is spent wisely, feels like an opportunity lost.