Furlough covers up number of workless households

Job retention scheme disguises bleak jobs picture as Covid-19 shutdown wreaks havoc on economy

Rishi Sunak
Chancellor Rishi Sunak faces a jobs crisis when the furlough scheme is wound up in the autumn Credit: Andy Buchanan/Pool via REUTERS

The number of workless households in the UK actually fell by 133,000 during the deepest economic plunge in the country’s history, the Office for National Statistics claimed on Wednesday.

Between April and June it estimated that 13.1pc of all households - 2.73m - had nobody in work due to unemployment or economic activity, down from 2.86m in the first quarter of the year.

But the figures have been badly skewed by the influence of the Government’s furlough scheme, which has protected more than 10m jobs, as well as provided support for some 2.5m self-employed workers.

Workers on furlough are not defined as unemployed, which has kept the jobless rate artificially low despite a record 20.4pc collapse in the economy due to an extended coronavirus shutdown. 

The share of working households remained virtually unchanged at 59.6pc or 12.5m, the ONS added. But analysts warned the respite from reality was unlikely to last much longer as the furlough scheme finally ends in October, threatening to accelerate the steady stream of redundancies from the UK’s biggest companies.

The Centre for Economic Performance has estimated that a more "realistic" employment rate for the UK is 61.7pc, compared to the ONS's 76.4pc estimate.

Susannah Streeter, senior analyst at fund manager Hargreaves Lansdown, added: “It’s become increasingly clear that the job retention scheme is masking the damage wreaked by the pandemic on jobs and the wider economy. 

“The unwinding of the furlough scheme has been followed by announcements of significant job losses across multiple sectors, particularly travel and retail. Given the challenges facing the UK economy we expect this trend to continue.”

Chancellor Rishi Sunak has already announced a £1,000 job retention bonus for those workers hanging onto staff until January, but the looming jobs crunch in the autumn is likely to spark calls for an extension of the furlough scheme.

Germany has extended its own version of the furlough until the end of 2021 at a cost of €10bn (£9.1bn) to help Europe’s biggest economy avoid its own jobs crisis.

The Kurzarbeit scheme, used in the financial crisis and originally intended to run for 12 months, pays the bulk of wages to allow companies to hold on to workers during an economic shock.

Olaf Scholz, the country’s finance minister, said the money for the extension will come out of next year’s federal budget, adding to the €1.2 trillion Germany has made available to prop up the economy during the pandemic.