Targeted extension needed for furlough scheme, warn MPs

The Chancellor should consider a “targeted” extension to the coronavirus furlough scheme to avoid a cliff-edge when it ends next month, according to an influential Commons committee.

The Treasury Select Committee said Rishi Sunak risks mass long-term unemployment and putting hard-hit viable firms out of business if the worker support scheme comes to an abrupt end on October 31.

In the second report of its inquiry into the economic impact of coronavirus, the cross-party committee of MPs also recommended further action to boost consumer spending after last month’s popular Eat Out to Help Out scheme.

It comes amid growing calls for an extension to the furlough scheme as fears mount over a jobs bloodbath after the Halloween deadline.

Chairman of the committee Mel Stride said: “The Chancellor should carefully consider targeted extensions to the Coronavirus Job Retention Scheme and explain his conclusions.

“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.

“This requires a very difficult set of judgements; it is where careful analysis and creative thinking will be critical.”

Businesses and many politicians – including Scotland’s First Minster Nicola Sturgeon – have been pressing for Mr Sunak to reverse his decision to fully wind down the wage subsidy scheme.

Around 9.6 million jobs have been supported by the furlough scheme since it was set up to protect workers during the Covid-19 lockdown.

But Mr Sunak has previously insisted the scheme will not be extended, instead putting faith in his job retention bonus offering firms £1,000 per furloughed worker brought back.

Bank of England Governor Andrew Bailey has also recently backed ending the furlough scheme, saying sector-specific support is needed, while the Bank’s chief economist Andy Haldane warned against an extension earlier this week.

But the Treasury committee condemned the job retention bonus, saying it is unclear if it is “good value for money as it’s not effectively targeted”.

It claimed the support will be used for a significant number of employees who would have been kept on anyway.

The committee also pressed for another move to help encourage consumer spending, cautioning the VAT cut on hospitality and leisure “may not be enough”.

In the report entitled The Challenges of Recovery, it warned: “Continued consumer caution around re-engaging with the economy, the prospect of more localised outbreaks and a second wave are dampening a full recovery to pre-pandemic levels of consumer spending, with some level of economic scarring almost certain.”

The Treasury insisted it would “continue to innovate in supporting incomes and employment through our Plan for Jobs”, but stopped short of commenting on the report’s recommendations.

Other recommendations in the report include measures to help small firms pay back loans taken out during the crisis, such as a possible student loans-style repayment system, as well as an extension to changes made to Universal Credit.

But the committee added the support measures would take a substantial toll on public borrowing and said Mr Sunak should set out an “initial roadmap” of plans to tackle ballooning Government debt.

Torsten Bell, chief executive of the Resolution Foundation think-tank, welcomed the report’s recommendations as “essential” to limit unemployment.

He said: “The Chancellor will need to reconsider his plans to swiftly phase out support given the painful reality that the economic crisis is here to stay.”