MPs Ask For A Targeted Extension Of The Furlough Scheme


  • The furloughing scheme was rolled out in the month of March 2020 when the lockdown was put in place. It helped as many as 9 million people in the country save their jobs, who received up to 80 per cent of their salaries from the government as their employers promised to keep them on the rolls.
  • While after opening of the lockdown, most people have joined back work, but nearly three million are yet to find jobs, as several industries are recovering at a slow pace.
  • There are fears that several people would go unemployed after the scheme runs its course by the end of October 2020 if a targeted extension of the scheme is not done, prompting the MPs to make this request.

A Treasury Select Committee led by the MP Mel Stride has urged the UK government to go in for targeted extension of the coronavirus job retention scheme or popularly called the furlough scheme. For this, the government should identify those sectors/businesses which will able to survive the economic slowdown with an extended furlough support. Small businesses need hand-holding and laid-off employees across the impacted sectors need re-skilling, the MPs have stressed in the committee report.

The furlough scheme of the British government was perhaps the most dynamic stimulus measure rolled out by any country to deal with wrath brought by the pandemic. The scheme sheltered nearly 9 million British working-class people under its umbrella by protecting their jobs and livelihoods.

However, now that the economy has been re-opened for most of the sectors, it is important that more people are brought back to active employment so that the cost of the scheme on the exchequer may be reduced quickly.

At the same time, there are several industries who have had a slow rate of recovery until now for various reasons and have not been able to bring back much of their staff of their payrolls. If the furlough scheme ends in October 2020 as planned, it could hit these industries very hard, and could throw millions out of their jobs.

How has the scheme helped businesses?

The furlough scheme was Britain’s idea to protect thousands of small, medium, and large businesses in the country from going bankrupt and protect millions of jobs.

When the pandemic first hit the country, it was immediately realized that revenue levels for most businesses would fall as a result of a smaller number of people wanting to come out of their houses, fearful of catching a Covid-19 infection. However, when the lockdown was imposed in the country on 23 March 2020 almost all businesses were shut for an indefinite period.

It was but obvious that businesses who were dependent more on their cash registers will be the worst hit by this lockdown and their employees would face an increased threat of unemployment than other industries. For any country, the small and mid-sized businesses are the backbone of its economy; hence the crumbling down of this segment of the economy could have had long-term disastrous consequences for economic growth.

Also Read: Covid-19 Impact: Higher Than Usual Instances Of Pay Freeze

Since the opening of the economy in May, several industries have been witnessing a strong revival, only because of the lucid loan schemes and the furlough scheme that were rolled out in March 2020. The most important dimension of the furlough scheme, however, was that the employment rate in the country was checked to a reasonable extent, though it is still quite high.

These schemes though costing a lot to the British exchequer, have helped the nation avoid a much bigger financial disaster of business failures.

Also Read: Londoners spent the least during the lockdown

The construction industry saw the best recovery rates since the opening of the lockdown. Most of its furloughed staff is back to work. Similarly, for activities involving water supply, sewerage waste management, and remediation activities about 91.1 per cent of the staff is back in active work.

Arts, entertainment, and recreation have seen the lowest number of people being called back from furlough.

Aviation and hospitality are also two of the worst impacted sectors due to the Covid-19 pandemic and have a large proportion of their total staff still under the furlough scheme.

Let us now take a closer look at the performance of three companies: EasyJet Plc from the British aviation sector, Whitbread plc belonging to the country’s hospitality sector, and Barratt Developments from the housing sector.

Easy Jet plc (LON: EZJ)

The company had grounded its entire fleet and had furloughed thousands of its staff as a result of the coronavirus pandemic. It had announced in May 2020 that it would be slashing up to 4,500 jobs or as many as 30 per cent of its staff in order to ensure that it is fully able to recover by the year 2023. This company is making a very slow recovery in line with the rest of the aviation industry because of the continuing threat of the pandemic as well as the stringent safety precautions imposed by the government. Employees of EasyJet plc will be major beneficiaries of the government extends the furloughing scheme.

The shares of Easy Jet plc have been underperforming at the London Stock Exchange since the beginning of the year. On 2 January 2020, the shares of the company traded on the exchange at GBX 1430.00 per share, and towards the third week of March 2020, they took a sharp turn downwards to reach a low of GBX 494.80 on 18 March 2020. The stocks turned volatile and recovered to GBX 891.20 on 8 June 2020, however since then there has been a downward movement in the prices of the stock, and as of 14 September 2020 the shares of the company were quoted at GBX 599.67 (GMT+1 1:17 PM), up by 3.41 per cent from the previous close.

Source – Thomson Reuters

Whitbread plc (LON: WTB)

Whitbread plc company had also furloughed a significant portion of its employees under the government scheme as most of its properties saw zero guest turnout because of the lockdown. The company had recently announced that it had benefited to the tune of £120 million because of the furloughing scheme and the 12-month business rate cut relief. In line with the airline industry, the hospitality industry has been slow to recover from the pandemic and would be able to use the government scheme for some time.

The shares of Whitbread plc have been underperforming at the London Stock Exchange since the beginning of the year. On 2 January 2020, the shares of the company traded on the exchange at GBX 4206.26 per share, and towards the third week of March 2020, they fell sharply to reach a low level of GBX 1808.45 on 19 March 2020. Thereafter the stock made a recovery to GBX 2790.43 on 26 March 2020. Since then, there has been a sideward movement in the prices of the stock, and as of 14 September 2020 the shares of the company were quoted at GBX 2313.00 (GMT+1 1:22 PM), down by 1.30 per cent from the previous close.

Source – Thomson Reuters

Barratt Developments plc (LON: BDEV)

Barratt developments plc has been one of the strongest recovering housing companies after the lockdown was lifted. By 30 June 2020 all of company’s sites were reopened and it has called back all of its employees from furlough.

The shares of Barratt Development had been subdued after the massive fall witnessed in the immediate aftermath of the decision to impose a lockdown across the nation. The shares of the company were trading at GBX 752.00 per share on 2 January 2020, in the beginning of the year. In March they fell sharply to GBX 364.70 per share on 19 March 2020, since then they have made a slight recovery but have been moving in a sideways direction. On 14 September 2020 they were trading at GBX 510.60 per share (GMT+1 1.34 PM) down by 0.95 per cent against the previous day’s close.

Source – Thomson Reuters

To sum up, through the recommendations made by a treasury select committee, a group of MPs are urging the UK government for a sector specific extension of the furloughing scheme. Several other industry groups have also been making such requests to the government sighting that in some industries nearly 40 per cent staff have not been called back to work, while others risk losing highly skilled staff.

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