The government’s furlough scheme ended on 30 September and the latest labour market data casts a worrying shadow over the prospects of many who might now be looking for work, particularly in London.
Widely credited with muting the impact of the collapse in economic activity brought about by lockdowns and other public health restrictions, the Coronavirus Job Retention Scheme for pay-rolled employees (aka furlough) has cost almost £70 billion nationally. At its peak, in May 2020, the scheme supported an astonishing 8.9 million workers across the country.
However, despite furlough, redundancies have increased during the year to June 2021, with around a million workers made redundant. And analysis by the Institute for Fiscal Studies (IFS) shows that workers in London have been hardest hit. Their contribution to overall redundancies rose from 12 per cent in the previous three years to 16 per cent in the most recent period.
As restrictions have eased and the economy has strengthened, there has been a steady fall in unemployment – nationally the rate is down to 4.6 per cent, lower than the previous quarter though still slightly up on the same time a year ago. However, London continues to struggle: the unemployment rate in the capital is six per cent, which is almost one percentage point higher than the same time last year. London has 73,000 fewer pay-rolled employees than in pre-Covid February 2020.
Before the schemed ended, furlough was supporting over 1.5 million workers across the country, of which some 300,000 were in London – that’s roughly the same number as were already unemployed. Given how hard London’s retail and hospitality sectors have been hit by the effects of the pandemic and the reduction in footfall from international and domestic tourists and commuters, it is perhaps unsurprising that London’s furlough take-up rate has been the highest in the country at eight per cent compared with five per cent across the UK.
A recent Greater London Authority (GLA) briefing paper confirms this picture, with accommodation and food services having the highest take up rate by sector. One in five of it workers were still on furlough at the end of July, and with high proportions of workers in the arts and entertainment and in construction also still on the scheme. Whether those workers will be retained, become long-term unemployed or quickly find new work is hard to tell.
Independent forecasts quoted by the Treasury indicate an expected rise in unemployment as furlough unwinds, but there’s a wide range of them, reflecting the uncertainty of how the economy is likely to perform – particularly so now in light of the supply chain disruptions that are playing out at global, national and local levels.
To try to get a clearer picture of how the labour market might respond, the IFS analysis focuses on workers in sectors that have not benefitted from the ending of Covid restrictions. That is because those people are unlikely to see a bounce in activity in their lines of work and are therefore more vulnerable to being made redundant as furlough ends. Again worryingly for London, key at-risk sectors include retail and transport and professional and administration where a significant proportion of workers (between 5 and 10 per cent) were still on furlough when the scheme drew to a close.
Two additional pieces of IFS analysis further darken the outlook for the capital. Across the country it is taking much longer to find a new job once made redundant than it was before the pandemic struck. Those living in London have fared worst in this respect, as “they are 15 percentage points less likely to have found a job within six months after being made redundant than those living in the rest of the UK (44 percent versus 58 per cent).”
The collapse in vacancies after February 2020 as employers retrenched will have hindered re-employment prospects. Now that the economy is recovering, and as we enter a period of what the Prime Minister calls “a period of adjustment after Brexit”, the demand for workers will surely increase as firms can no longer turn on the tap of mobile EU migrants. More vacancies will ameliorate fears of a rise in unemployment as long as there is an appropriate regional and skills match between those looking for work and employers with jobs available.
But again, London’s labour market is struggling. Data from the Office for National Statistics indicates that across the country around one million vacancies were reported between June and August 2021 and that on-line vacancies are up by between 25-30 per cent since the start of the pandemic. However, the growth in vacancies in London is the lowest of all the regions at just eight per cent. Vacancies in some sectors which are important in London’s economic landscape, such as legal, travel and tourism, the arts and media, show no signs of rebounding and are still well below where they were in February 2020.
What do businesses think is going to happen? The most recent London Chamber of Commerce and Industry (LCCI) quarterly survey of 507 business leaders, which ran between July and mid-September, paints a mixed picture. There’s a broadly positive business outlook and there has been encouraging growth in domestic sales, particularly for those firms based in Central London. One in five businesses surveyed say that they are likely to see their workforce increase over the coming months, which is a hopeful sign.
However, more firms are reporting a decline in cashflow than not, and there are concerns over rising costs for energy, fuel and raw materials as the pressure on profit margins will become acute. The LCCI takes this to indicate a slow, sluggish recovery, which unfortunately may not be enough to prevent a rise in unemployment over the coming months.
Richard Derecki is an economist and governance expert who has worked for the 10 Downing Street strategy unit and the Greater London Authority. Follow Richard on Twitter.
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