By David Milliken

LONDON (Reuters) – More than a million British workers face an uncertain future this week as the UK becomes the world’s first big economy to wind up its COVID-19 jobs support scheme.

It cost over 68 billion pounds (or $93 billion), and was the largest single source of economic assistance in the UK during the Pandemic.

This marked a major shift in British policy, where the unemployment benefit is low by European standards.

Sabby Gill, the chief executive of Thomas International, a human resources software company, said, “I think it was an absolute lifesaver…and was exactly what government needed to put into.” The furloughed workers were continued until January.

The British and European approaches to pandemic jobs support were different from those in the United States. They increased unemployment benefits but did not make the effort to maintain the connection between employees and employers.

Germany and other European countries that have a long tradition in short-term working programs like Germany keep furlough support for longer periods, especially those sectors most affected.

Most observers believe Britain should end its program on September 30 because of record high job vacancies and severe shortages in workers like truck drivers.

Tony Wilson, Director of the Institute for Employment Studies, said that “now we must focus more on active measures for people to take up the jobs available, instead of passive measures that don’t pay people to work.”

The short-term effects of this scheme’s ending on the economy and unemployment are not clear.

The Bank of England described it as a source of uncertainty in its decision-making on raising interest rates. Governor Andrew Bailey stated Monday that this situation was a challenge for central bankers.

Minutes of their September meeting revealed that policymakers held a range of opinions on how to reduce unemployment. They wanted data about the effect of the expiry of the program’s end.

According to official data, 1.56 million people were either partially or fully furloughed at the end July. This is down from 8.86 million just a few months after the program was launched. Only half of those were furloughed completely, with the rest working part-time during pandemics.

An Office for National Statistics survey of employers shows that total furlough numbers did not drop significantly in August, with between 0.3 to 0.8 million people out of work.

Wilson feels that Oct. 1, the number of new jobless people will fall to the bottom of this range. Partly because some of these workers will have had side jobs, and others may have lost their place in the labor market.

In Britain, the unemployment rate rose to 4.6% from 4.0% in July. However, the “inactivity rate” – which is the percentage of working-age adults who care for loved ones, are ill or studying full-time – rose to 21.1% from 20% before.

INFLATION RISK

Even if the jobless rate rises, that would not necessarily stop the BoE raising interest rates early next year.

Inflation could rise if those newly employed lack the skills needed to work in the most difficult areas, such as programming computers or plucked turkeys.

Wilson explained that it could seem a lot like the 2000s, which saw a robust recovery but also significant labor shortages leading to higher wages and inflation. This is in contrast with the early 2010, when this was the case.

British businesses cannot employ people from eastern Europe that are less fortunate than the UK, as per the post-Brexit visa regulations. This is similar to what happened in the 2000s and 2010.

Bev White of Harvey Nash, the chief executive of recruitment agency, stated that tech-related jobs are more difficult to fill and employers need to be less selective in hiring employees.

Not all those jobs are rocket science-related, and chatbot managers require only motivation and willingness.

Some economists don’t believe the bottlenecks are going to last. As it did following the global financial crisis in 2008, others believe the lackluster job market will have an impact on inflation and wages.

Samuel Tombs of Pantheon Macroeconomics stated that “we expect underemployment to increase sharply as people go back to their employers but work fewer than they would want.” He also expects the rate at 5.0%.

LONGER-TERM LESSONS

Whether the furlough programme should reappear during future economic downturns in Britain is up for debate.

The UK’s deficit budget grew more than other advanced countries last year, making it the highest level since World War Two. Rishi Sunak, finance minister has proposed big raises in payroll taxes to help fund increased health care and social services spending.

Anna Leach of the Confederation of British Industry, deputy chief economist, stated that for now targeted support is required to help sectors like aviation still suffering from the pandemic.

The Trades Union Congress in Britain would prefer furlough to be a permanent feature of the economy. This would allow businesses to postpone layoffs while also allowing them to retrain.

Organisation for Economic Co-operation and Development stated that the government must be open to new ideas, particularly given low general unemployment benefits.

A British worker with an average income would receive 34% in benefits if they were to go unemployed for three consecutive months. This compares to 68%, 59%, and 40% respectively in France, Germany, and the United States. OECD data also shows that in 2019, 34% of these people will have lost their earnings.

Early evidence suggests that workers would be tied to their employers, with low long-term prospects, so fears of furlough seem misplaced. This includes OECD data from last year which looked at Australia, New Zealand and Britain.

Alexander Hijzen from the OECD, senior economist said “I think it’s worked very well.” It is a tool that should be included in the arsenal of tools governments need to manage other economic crises.

($1 = 0.7311 pounds)