Britain’s furlough plan is only just the start

When Boris Johnson said “we must act like any wartime government,” he also meant Britain must spend like one — and the prime minister has certainly lived up to the promise. His Chancellor of the Exchequer Rishi Sunak told Parliament that Britain had one of the most comprehensive financial relief plans for the Covid-19 outbreak anywhere in the world. That was no exaggeration.
The mix of cash grants, tax cuts, loans and other support has cushioned the blow of the lockdown for workers, kept British businesses from folding and built a level of public support that wasn’t warranted by the UK’s disastrous early handling of the public health crisis. But the largess has made some of Johnson’s fellow Conservatives uneasy. They argue that so much interventionism is distorting the market, creating a dependency on benefits, propping up failing firms and building a mountain of debt that will burden future generations.
Worse, they fear the sugarcoating has generated so much support for Johnson’s lockdown that people are reluctant to return to their jobs. That would prolong the economic pain. While the arguments in favour of Sunak’s approach are the more compelling in these times, the worriers shouldn’t be dismissed entirely. Rolling out these spending measures is much easier than figuring out when to end them or how to help workers and businesses adjust to the post-pandemic economy.
At the heart of Sunak’s plan is the Job Retention Scheme, a furlough program under which the state pays 80% of wages up to 2,500 pounds ($3,064) a month.
The chancellor extended the plan through to October, dispelling rumours that he would taper the support after June. He did, however, make two crucial changes. The plan will become more flexible from August, so that workers can be part-furloughed and work part-time, something many businesses have been asking for. He also said companies will have to shoulder more of the cost burden.
The scale of the furlough programme shows Johnson and Sunak are serious about stepping in where the market can’t. The government is supporting 7.5 million furloughed private sector workers and nearly 1 million businesses. By comparison, there are 5.4 million public sector workers in the UK. The National Health Service, which provides healthcare to the entire country, costs the taxpayer about 11 billion pounds a month; the pandemic jobs program alone costs 8 billion pounds a month.
Even if it can borrow easily and cheaply now, the government doesn’t want to be in the business of propping up defunct industries or sectors. Britain did that with coal for too long. Industries that have leaned most heavily on the furlough scheme tend to be those, such as the hospitality sector, whose futures are up in the air. Many of those jobs may disappear anyhow. But which ones? If this pandemic has left any writing on the wall about the shape of the future economy, nobody has deciphered it yet.

—Bloomberg