Bank of England's chief economist warns against extending furlough

Bank of England’s chief economist warns against extending furlough as ‘keeping jobs on life support’ is ‘prolonging the inevitable’ as CBI argues it should be replaced with new scheme

  • Andy Haldane says pandemic caused ‘lasting structural damage’ to the economy
  • Bank of England’s chief economist says adaption ‘is the most painless solution’
  • CBI chief Dame Carolyn Fairbairn has made call for a ‘less expensive’ alternative

The Bank of England’s chief economist has warned against extending the coronavirus furlough scheme, claiming that keeping jobs on ‘life support’ is simply ‘prolonging the inevitable’.

Andy Haldane says the pandemic has caused ‘lasting structural damage’ to the economy and that ‘regrettably, some business will not make it through’.

In a podcast with City A.M, the economist said the ‘most painless solution’ is to recognise the damage caused and plan to adapt ‘ to the new world’.

It comes as bosses at the Confederation of British Industry (CBI), which represents around 190,000 businesses, argued the furlough scheme, which has cost more than £40billion so far, should be replaced with a new system.

Dame Carolyn Fairbairn, director-general of the CBI, said the furlough system could be replaced with a ‘much less expensive’ new scheme which would allow a smoother transition.

Andy Haldane says the pandemic has caused ‘lasting structural damage’ to the economy and that ‘regrettably, some business will not make it through’

Dame Carolyn Fairbairn, director-general of the CBI, said the furlough system could be replaced with a ‘much less expensive’ new scheme which would allow a smoother transition

Mr Haldane, who is The Bank of England’s (pictured) chief economist said keeping jobs on ‘life support’ is simply ‘prolonging the inevitable’

Arguing for an end to the furlough scheme, Mr Haldane told City A.M: ‘Keeping all those jobs on life support is in some ways prolonging the inevitable in a way that probably doesn’t help either the individual or the business.’ 

Up to £3.5BILLION of furlough cash has been lost to fraud or handed out in error, HMRC reveals before scheme is axed next month 

Up to £3.5 billion of furlough cash may have been paid out in wrong or fraudulent claims, according to official Government estimates.

HMRC has calculated that between five per cent and 10 per cent of payments may have been either stolen or paid out in error.

The total bill for the state subsidy scheme currently stands at more than £35 billion.

The job retention programme is now being wound down and will be scrapped entirely by Chancellor Rishi Sunak at the end of October. 

Jim Harra, the top civil servant at HMRC, told the Public Accounts Committee this afternoon that his staff believe between five per cent and 10 per cent of furlough cash might have gone to the wrong places.

 

‘We have made an assumption for the purposes of our planning that the error and fraud rate in this scheme could be between five per cent and 10 per cent,’ the permanent secretary said.

The Government has so far paid out £35.4 billion in furlough cash, according to the latest official figures.

If HMRC’s working assumption proves to be accurate it will mean that somewhere between £1.75 billion and £3.5 billion could have been paid out by mistake or as a result of fraud.

‘That will range from deliberate fraud through to error,’ Mr Harra said.

She added that struggling firms should look to wage restraint and even reduced hours before making job cuts. 

‘For me that would be a less painful way of businesses adapting now, if the burden was shared across the workforce for those companies for which demand hadn’t fully returned, and shared through..somewhat lower pay rises or somewhat shorter hours rather than all the burden being taken in job losses for a smaller number of people.’

He said adopting a more flexible approach might be ‘one of the things that protects us from too many more job losses.’

The Coronavirus Job Retention Scheme has cost £40billion so far, and has helped to pay the wages of nearly 11million people. 

The scheme will end on October 31, but opposition MPs have urged the Government to extend it – despite warnings about tax rises.

Yesterday Mr Johnson ruled out an extension after Labour MP Kate Osborne asked him do as other countries have done and continue the scheme.

He replied: ‘I don’t think that’s the right thing. I think the best way forward for our country is to get people as far as we possibly can back into work.’

Today Ms Fairbairn told Radio 4 that the CBI was proposing a new Short Working Hours scheme, which would see businesses pay for at least half of hours worked.

She said for hours not worked, the cost would be split between the government, the employer and the worker.

She said: ‘You would have some support, but it would be less and you would see far fewer companies take it but, but enough to create a smooth transition and protect jobs at this very crucial time.’  

This week, Mr Johnson pushed back any idea of extending the current furlough scheme when quizzed by Labour leader Keir Starmer at Prime Minister’s Question Time.

Mr Johnson responded: ‘We are getting people back to work, what he wants to do is extend the furlough scheme on which this country has already spent £40 billion, what we would rather do is get people into work through our kick start scheme which we are launching today with £2 billion to spend, to support people, young people in particular to get the jobs that they need.

Boris Johnson, pictured during Wednesday’s Prime Minister’s Questions in the House of Commons, has said the government will not be extended the Coronavirus Job Retention Scheme, which is set to come to an end on October 31

Labour leader Sir Keir Starmer, pictured during Wednesday’s Prime Minister’s Questions in the House of Commons, insisted that the government must continue to help industries that are yet unable to return to normal during the pandemic

‘He wants to keep people out of work in suspended animation, we want to move this country forward, that’s the difference between him and us.’

SNP Westminster leader Ian Blackford said ending the scheme would lead to unemployment levels last seen under Margaret Thatcher in the early 1980s.

Mr Johnson replied: ‘What we want to do is get people back to work and that’s why I hope he (Mr Blackford) will instead support our Kickstarter scheme to get young people into jobs and support them in those jobs.

‘How much better is that than languishing out of work?’

Labour’s Sir Keir earlier said: ‘The jobs of millions of people are at risk, the longer he delays, the more they’re at risk, so will he act, finally get this decision right and commit to extend the furlough for those sectors and those workers that desperately need it?’

The debate comes as it was revealed yesterday that up to £3.5 billion of furlough cash may have been paid out in wrong or fraudulent claims, according to official Government estimates.

HMRC has calculated that between five per cent and 10 per cent of payments may have been either stolen or paid out in error.

The total bill for the state subsidy scheme currently stands at more than £35 billion.

The job retention programme is now being wound down and will be scrapped entirely by Chancellor Rishi Sunak at the end of October. 

Jim Harra, the top civil servant at HMRC, told the Public Accounts Committee this afternoon that his staff believe between five per cent and 10 per cent of furlough cash might have gone to the wrong places.

Jim Harra, the top civil servant at HMRC, told MPs today that its working assumption is that up to 10 per cent of furlough claims may have been paid out in error or because of fraud

‘We have made an assumption for the purposes of our planning that the error and fraud rate in this scheme could be between five per cent and 10 per cent,’ the permanent secretary said.

The Government has so far paid out £35.4 billion in furlough cash, according to the latest official figures.

If HMRC’s working assumption proves to be accurate it will mean that somewhere between £1.75 billion and £3.5 billion could have been paid out by mistake or as a result of fraud.

‘That will range from deliberate fraud through to error,’ Mr Harra said.

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