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Across the U.K., the job cuts have begun.
Over the course of just three days, British companies, from the budget airline EasyJet to the iconic department store Harrods, announced more than 12,000 job cuts—despite the government spending billions so far to keep workers on payrolls.
The latest cuts show the deep unease in the British economy, which has seen the worst COVID-19 outbreak in Europe. Boris Johnson’s government stepped up early with an aggressive plan to partly nationalize wages. It wasn’t enough to keep unemployment levels from eventually taking off.
Lawmakers around the world are grappling with what to do about expiring coronavirus stimulus programs that protect workers. The U.S. Senate struck a last-minute deal to extend America’s Paycheck Protection Program (PPP), which economists credit for minimizing job losses during the height of the pandemic.
Britain’s equivalent of the PPP is far more ambitious. It’s called the Coronavirus Job Retention Scheme, a furlough plan now standard across much of Europe. In March, as the country faced a looming nationwide lockdown, Chancellor Rishi Sunak announced the government would pay 80%, or up to GBP 2,500 ($3,122), of the salaries of furloughed workers, as long as they were kept on payroll. It amounted to an extraordinary measure of taxpayers footing workers’ wages.
It was part of a vast economic backstop Sunak characterized as an act of national solidarity. Prime Minister Johnson pledged that the program—which has cost GBP 120 billion ($150 billion) so far—was proof that 2020 would not be a repeat of the global financial crisis of 2008 and that this time around, the conservative government would “put people first.”
Across Europe, politicians have made similar pledges, with comparable plans across the continent. The most generous is Germany’s Kurzarbeit. Collectively, the programs were a bet that the lockdowns’ economic damage would be sharp but short, and that keeping employees on payroll would enable a quick rebound as economies reopened: in effect, a bet on the so-called “V”-shaped recovery.
And the schemes have largely worked: Unemployment from February to April, the last month that statistics are available, was a stable 3.8%, according to the U.K.’s Office of National Statistics, even as more than 9.3 million jobs were on the scheme by the end of May—out of a population of 66.65 million.
In the EU, unemployment overall is 7.4%. Meanwhile, U.S. unemployment has skyrocketed to 11.1%, a multi-decades high. That’s an improvement from the peak unemployment rate of 14.7% two months ago, but economists are questioning the sustainability of America’s jobs rebound with coronavirus infections on the rise again.
In the U.K., too, cracks are starting to show. The furlough program, originally intended to last until the end of May, has now been extended to October, with “tapering” beginning in August. From Tuesday, companies had the choice to bring back furloughed employees part-time, but on their own dime, or keep them on the furlough scheme.
The U.K. economy is now deeply dependent on the program, according to a survey by polling company YouGov earlier this month. A study of more than 500 business leaders found that 51% said they would have to start layoffs within three months of the scheme’s ending, with 21% saying they would have to lay off 30% of their employees, at least.
Meanwhile, a “V”-shaped recovery looks increasingly unlikely. While the U.K. is due to allow restaurants, pubs, and cinemas to reopen this weekend, many small businesses say they can’t afford to do so with social distancing rules in place. A local lockdown, due to spiking cases in the central English city of Leicester, meanwhile, shows that more shutdowns are not out of the question.
Faced with those grueling facts, this week’s layoffs suggest many British companies chose the most unpopular of options: lay off staff in acknowledgement that the furlough plan was only delaying the inevitable.
