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Furlough scheme must evolve to support short-time working

Roy Rickhuss
Roy Rickhuss
6th May 2020

Roy Rickhuss argues that the Job Retention Scheme needs to evolve into support for short-time working to support business through the recovery. This piece was first published in the Daily Telegraph.

The Government must continue to support employment when we move out of lockdown. Simply ending the Job Retention Scheme with no replacement is unthinkable and would most likely lead to mass job cuts, meaning that thousands of workers in furlough now are only deferred redundant, entirely defeating the point of the scheme.

The Job Retention Scheme should be a foundation on which to build the employment support infrastructure that the UK might need for many years to come. The Government should be applauded for introducing the Job Retention Scheme in consultation with trade unions and business.

This tripartite approach led to a scheme that in some respects is among the best in Europe. The importance of it cannot be overstated.

The extension of the scheme to the end of June was welcome, but was also clearly essential. With no certainty as to how and when the lockdown will be lifted, there is little doubt that, had the scheme not been prolonged, employers across the economy would have started statutory redundancy consultations leading to mass job losses.

We know the Job Retention Scheme will not continue long-term in its current form. The cost to the taxpayer is enormous, with the total value of JRS claims reaching £4.5bn so far.

The scheme is designed to support businesses and employees during this period of lockdown, but it should be modified so it can support the reboot and rebuilding of the economy. The economic recovery will be long and bumpy, and the UK must not be left behind by competitor countries in Europe, which have long-established programmes for retaining skills and employment in the face of significant fluctuations in demand.

The Government needs to provide companies with the tools and flexibility to navigate an uncertain economic outlook and adapt to changing circumstances while protecting employment and the financial security of their workforce.

But it is vital too that the scheme evolves to adapt to the specific needs of industry as we move forward. The current scheme works well in the retail and hospitality sectors, which essentially have had to cease all activity during the lockdown.

The scheme has meant that shop and hotel owners have been able to furlough their entire workforce and put their businesses into hibernation for the lockdown period, ready to come back online when restrictions are lifted.

But for the steel industry and others in manufacturing, the scheme is less fit for purpose. The steel industry has continued to produce during the lockdown, albeit on a reduced basis. It has produced, among other things, vital materials for the Covid-19 effort, such as steels for NHS beds and packaging for the food supply chain.

These sectoral variations should be addressed in new forms of job retention support as the lockdown is lifted. There is unlikely to be any V-shaped recovery for the steel industry. Demand is set to be depressed and fluctuating for many months or even longer.

The steel industry is tied to the fortunes of key steel consuming sectors like automotive, and the reality is that over the medium term, fewer people are going to be buying cars and fewer companies are going to be refreshing their fleets.

The industry will not be able to ride the waves of recovery on its own. Without more confidence about its future, investment will dry up and set the UK at a further competitive disadvantage.

The Job Retention Scheme is a good starting point for a potential solution, but for further inspiration, the Government could do worse than look at the German Kurzarbeit system, which provides a tried and tested way for firms to retain skilled workers during a downturn. It is acknowledged as a key reason why Germany recovered so quickly after the 2008 crisis.

Under this short-time working scheme, which has been widely imitated on the continent, employees are compensated up to two thirds of their net pay lost due to the working time reduction. Under exceptional circumstances, the short-time working can last up to 24 months.

Our steel industry and manufacturing sector are going to be fundamentally important to rebuilding our economy as we move through this crisis. We will need ongoing support to retain jobs and skills, and encourage investment, which we know our competitors in Europe and elsewhere are set to receive.

Our Government must draw on the best practice that is out there to ensure our industry is equipped with the tools required to survive and thrive.

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