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29 July, 2020 Open access

‘Premature’ closure of CJRS will push unemployment rate to 10 per cent, says NIESR

Institute comments that extending scheme beyond October 2020 would have been 'relatively inexpensive' and that, by reducing unemployment, it 'might have paid for itself'

The 'premature' closure of the Coronavirus Job Retention Scheme (CJRS) at the end of October 2020 will push the unemployment rate to 10 per cent, according to the National Institute of Economic and Social Research (NIESR).

In a new economic forecast, the NIESR says that, having contracted by about 25 per cent when the lockdown was in operation, the UK economy is now entering a phase where activity is expected to be subdued at the same time as government support measures are withdrawn. The Institute adds that -

'With the government furlough scheme ending in October, unemployment is set to rise to close to 10 per cent of the workforce by the end of this year. It then recedes as the recovery gathers speed in 2021, but remains above its recent level of 4 per cent. 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.'

Commenting on the ending of the CJRS, NIESR Deputy Director Gary Young said -

'The planned closure of the furlough seems to be a mistake, motivated by an understandable desire to limit spending. The 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 and this increases the probability of economic scarring.

The scheme has been an undeniable success in terms of keeping furloughed employees attached to their jobs. The incentives offered to employers by the Job Retention Bonus look too small to be effective given the uncertainty about the economic outlook - a one-off payment of £1,000 per employee compared to an average wage of £530 per week.'

For more information, see 'Premature' end to furlough to push jobless rate to 10 per cent