Rishi Sunak's easing of the furlough may be the start of a painful era

We don't know the effects the coronavirus will have on the wider economy, so we can't know what scaling back government support will have.

In what is likely to be the his most significant decision as Chancellor, Rishi Sunak has announced a timetable to reduce the scale of the furlough scheme.

In a sensible tweak, from the beginning of July, businesses will be able to “part-furlough” employees: that is, someone working 26 hours whose business can presently only afford to hire them for 12 hours work will be able to furlough them for the difference.  But from August, the cost of furloughing employees will begin to fall on the employer: in August, companies will have to pay national insurance and pension contributions from furloughed staff, while in September, they will be asked to pay ten per cent of the 80 per cent of salary. For the supposedly “final” furlough payment in October, businesses will have to pay 20 per cent, while the Treasury will continue to pay the remainder.

I say “supposedly final”, because the easing of the furlough scheme is one of the biggest and most difficult policy decisions the Chancellor of the Exchequer is likely to make. We know that there are some parts of the economy that are simply not able to function in the era of social distancing, and we don’t know how large they are. We don’t know if the government has started to ease lockdown too quickly and if that will mean a second lockdown and, therefore, a second round of furloughing.  

We do know that while some of the ten million furloughed workers will be able to return to work, at least some will end up being made redundant. It’s plausible, if that number proves to be very high, we will see a slight lengthening of the proposed timetable to end the furlough.