The Bank of England Governor Andrew Bailey has called on the UK government to “stop and rethink” its current furlough scheme.
The Bank of England governor wants the UK government to re-examine the furlough scheme, called the Coronavirus Job Retention Scheme, which allows employees placed on leave to receive up to 80% of their pay, up to a maximum of £2,500 a month.
Initially paid by the government, firms are now contributing part of the wages for those under the scheme. Almost 10 million workers have benefited from the program but it will end on October 31.
In August, Bailey supported ending the current scheme, arguing that workers should be helped to transfer to another work rather than stay in unproductive jobs.
However, while speaking on a webinar hosted by the British Chambers of Commerce on Tuesday, Bailey pointed out that some sectors may benefit from continued targeted assistance.
Calls for extending the furlough scheme
Leading business groups in the UK have warned that if the furlough scheme is not extended, the country may face a second wave of job cuts.
According to business groups, the UK risks additional job cuts and a slower economic recovery if it fails to extend the current furlough scheme.
Manufacturing body Make UK argued that the furlough scheme should be extended beyond October for sectors that have been hit hard by the effects of the coronavirus pandemic and are already experiencing workforce reductions.
Make UK conducted a survey of over 200 manufacturing firms and found that more than 60% wanted the scheme extended for strategic industries, including aerospace and car manufacturing.
The group also mentioned that Germany, Belgium, Australia and France, have all made extensions or created new wage support schemes that would be in effect until next year.
Meanwhile, the Confederation of British Industry (CBI) said a replacement was needed to avoid a “cliff edge”.
Head of the CBI Dame Carolyn Fairbairn explained that while the furlough scheme had been expensive, it was “an absolute lifesaver” and more help was needed.
She also mentioned that around 25% of businesses in the hospitality, retail, leisure and travel sectors are facing the possibility of insolvency.
However, the British Prime Minister has refused to grant an extension to the scheme, arguing that it would only keep workers “in suspended animation”.
Bailey’s take on the furlough scheme
During the webinar, the Bank of England governor said: “Why I said it is sensible to not continue the current scheme is the precisely the point.” He claimed that he did not want to “tie the chancellor’s hands”, emphasizing that it is for the government to decide on any changes to the scheme.
He explained: “We have moved from a world of generalized employment protections, to specific and focused areas.” He focused on the importance of targeting specific issues affecting the economy.
However, he argued: “It would be completely inappropriate of me to do anything to tie the chancellor’s hands, it’s a very difficult situation we’re in at the moment and I fully support the decisions that he’s taken.”
“Furlough has been successful and I congratulate the chancellor [Rishi Sunak],” Bailey said. He noted that at the peak of the crisis, approximately 30% of private sector employers were part of the scheme.
“It has helped manage the shock, to firms and to labor. The use of it, as far as we can tell, is more concentrated,” he added.