Extension of furlough scheme in Scotland would cost an estimated £850m

UK Chancellor Rishi Sunak introduced the Coronavirus Job Retention Scheme earlier this year

AN extension of the UK Government’s Coronavirus Job Retention Scheme (CJRS) could reduce unemployment by 61,000 in Scotland through the first half of 2021.

The claim comes in a newly released paper from the Scottish Government, which explores the costs and benefits of extending the scheme which is due to come to a close on October 31.

The scheme, which allows employers to access financial support from the UK Government to pay part of their furloughed employees’ wages, was paying out £4 billion in a single week at its peak.

The Scottish Government’s Covid-19: Analysis of Extending the Coronavirus Job Retention Scheme states that an extension of the CJRS in Scotland through to June 2021 would come at an estimated cost of £850 million.

Scottish Labour recently warned that Scotland’s construction industry faces a ‘tidal wave’ of unemployment, should a contingency plan not be drawn up for the end of the furlough scheme – with the sector having the second highest uptake of the scheme, with 171,400 employers using CJRS.

The Scottish Government paper states that even though an extension of the scheme would be temporary, there is evidence that it can have a ‘persistent’, ‘positive’ impact on the labour market and help to prevent higher levels of unemployment over the next few years. Estimates show that employment would be 1.9% higher by the end of 2023 than if CJRS was wound down in October, which equates to some 50,000 jobs.

The document continues by listing estimates which suggest that an extension could pay for itself in the short term. Using estimates from the National Institute of Economic and Social Research (NIESR) on UK figures, the Scottish Government assumes that around 102,000 people are still on the furlough scheme as of the end of October and remain so in November and December as the scheme is extended (at a cost of £300 million). It then assumes that this falls to 61,000 people across January to June (at a cost of £550 million), resulting in a total cost of approximately £850 million for the eight month extension.

The NIESR modelling finds that the increase in domestic demand from the extension of the scheme boosts GDP in the short term by more such that the debt to GDP ratio falls. The paper reads, “Wider economic benefits from the extension mean that it could pay for itself, increasing GDP and potentially lowering debt as a share of GDP over 2020 and 2021. In this sense the extension ‘pays for itself’ in the short term.”

A separate report from NIESR said, “The planned closure of the CJRS seems to be a mistake, motivated by an understandable desire to limit spending. The furlough scheme was intended by the Chancellor to be a bridge through the crisis and there is a risk that it is coming to an end prematurely.

“Unemployment would have stayed lower had the government extended the furlough scheme beyond the end of October. This would have been a relatively inexpensive measure, and by preventing a rise in long-term unemployment might have paid for itself.”