Rishi Sunak's TICKING TIME BOMB: Furlough crisis looms with jobless tipped to rise to 10%
RISHI Sunak is playing with fire with his plans to wind up the Government's furlough scheme and unemployment could soar to 10 percent as a result, an economist has warned after the publication of a chilling analysis.
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The Government's arrangements, put in place in a bid to protect jobs as the coronavirus pandemic forced huge swathes of the British economy to shut down, are due to come to an end in October. However, the report, published by the National Institute for Economic and Social Research (NIESR) suggests the Chancellor's strategy is fraught with risk.
NIESR deputy director Garry Young said: "The planned closure of the furlough seems to be a mistake, motivated by an understandable desire to limit spending.
"The scheme was intended by the Chancellor to be a bridge through the crisis and there is a risk that it is coming to an end prematurely and this increases the probability of economic scarring."
Earlier this month, Mr Sunak new proposals aimed at preventing widespread job losses, including the Job Retention Bonus, whereby employers will be paid £1,000 for every furloughed worker they bring back to work - as long as they then employ them continuously through to January.
However, Mr Young suggested it would not be an adequate replacement.
Speaking of the furlough initiative, he said: "The scheme has been an undeniable success in terms of keeping furloughed employees attached to their jobs.
"The incentives offered to employers by the Job Retention Bonus look too small to be effective given the uncertainty about the economic outlook ─ a one-off payment of £1,000 per employee compared to an average wage of £530 per week."
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NIESR's analysis warns of an extremely uncertain economic outlook which depended on the effectiveness of policies aimed at managing the economy while keeping down rates of COVID-19 infection.
It forecasts hours worked to fall by 12 per cent in 2020, and unemployment to rise to 10 percent during the same period and to remain above the pre-pandemic level - four percent - for some time to come.
The analysis also predicts forecasts a drop in GDP of 10 percent cent in 2020, prior to bouncing back by six percent next year, with the level of economic activity seen in the last quarter of 2019 not likely to be regained until 2023.
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After contracting by about 25 per cent when the lockdown was in full effect, the economy is now entering a phase where activity is likely to be subdued at the same time as government support measures are withdrawn.
Unemployment would have stayed lower had the Government agreed to extend the furlough scheme past the end of October, the NIESR report argues.
Introducing the replacement scheme in the Commons earlier this month, Mr Sunak told MPs: "Its vital people aren't just returning for the sake of it - they need to be doing decent work.
"So for businesses to get the bonus, the employee must be paid at least £520 on average, in each month from November to the end of January - the equivalent of the lower earnings limit in national insurance."
Mr Sunak said if all employers took full advantage of the scheme, the policy would cost £9 billion.
He added: "Our message to business is clear: if you stand by your workers, we will stand by you."
The furlough scheme is changing significantly from the start of August.
While the Government will continue to pay 80 percent of the wages of employees, employers will have to start paying national insurance and pensions contributions for the first time since April.
In September the Government's contribution will drop to 70 percent, with employers chipping in the extra 10 percent.