A million workers are still employed by businesses at risk of closure over the next three months, as the government is poised to withdraw critical Covid support schemes, according to new analysis.
One in 16 firms say that they are now at risk of closure in the next quarter, the study by the LSE’s Programme on Innovation and Diffusion (POID) has found. While it marks a major rise in confidence since the worst depths of the pandemic in January, there are warnings that the risk to so many workers coincides with the planned end of the furlough jobs scheme and a cut to universal credit by £20 a week.
There are also concerns that some industries are still being hit disproportionately by the fallout from Covid, with the entertainment and travel industries still making heavier use of the furlough scheme than other sectors. The number of people being paid through the UK scheme stood at 1.9 million at the end of June and it is due to close at the end of next month.
Huge uncertainty remains over the economy’s direction in the next six months. While confidence has risen, there are warnings over complacency. Former prime minister Gordon Brown, who founded the Alliance for Full Employment group to promote jobs protection and work creation programmes, said “a new jobs crisis point is approaching as furlough ends”.
He called for the government’s Kickstart and Restart jobs schemes to be expanded dramatically in preparation. He said they were needed to “cope with the one million young people not in work and the one million people leaving furlough”. The TUC also urged the creation of a permanent short-time working scheme.
Peter Lambert, one of the authors of the POID research, said the end of the furlough scheme would be “an inflection point” where the economy could go either way. He added: “I think there will probably need to be some continuation of support in specific sectors. My bet is there’ll be more targeted support, because unless the economy really, really picks up, there’s going to be lots of people still left in the lurch in specific sectors.”
There are also concerns over the impact on families switching from furlough support to universal credit, especially as the £20-a-week increase brought in at the start of the pandemic is to be withdrawn this autumn.
The move from furlough on to universal credit will create a significant income shock for some. The difference could be as much as £2,304 a month for a couple who had both been furloughed, according to the Policy in Practice consultancy. It also found that the loss of the £20 weekly increase would mean 683,000 households, covering 824,000 children, will no longer be able to meet their essential costs.
Changes are also being made to the universal credit system that will affect the self-employed. The reintroduction of the so-called “minimum income floor” could see some households lose £771 a month.
Deven Ghelani, chief executive of Policy in Practice, called for a rethink. “By removing the pandemic’s protective measures too early, the government is introducing an autumn of income shocks to families who depend on this support.”
Jack Leslie, senior economist at the Resolution Foundation, said the course of the pandemic remained the “biggest question mark” over the course of the economy. “The cut to universal credit for 4 million families in the UK will have a really big impact on those individual families, but also on the economy as a whole,” he said. “If we see there are more spending reductions in the budget, that could pose some material headwinds to economic recovery.”
A Treasury spokesperson said: “We deliberately went long with our support to provide certainty to people and businesses over the summer; and that support is continuing with reduced business rates and cuts to VAT in place until March 2022, and the furlough scheme running until the end of September.
“The universal credit uplift was always intended to be a temporary measure to help households through the pandemic, but we are continuing to support people and ensure they have the skills and opportunities they need to get great jobs. We’ve invested billions in our Plan for Jobs, which is already getting people back into employment … and businesses can also continue to access other support including our Recovery Loan scheme.”