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Analysis: The end of the holiday brings uncertainty to UK jobs and the economy

  • The UK’s COVID-19 vacation program ends September 30th
  • Support is still being given to over a million UK workers
  • BoE and economists split over outlook for unemployment
  • Employers report record job vacancies and a shortage of skilled workers

LONDON, September 28 (Reuters) – More than a million UK workers face an uncertain future this week as the UK becomes the world’s first major economy to end its COVID-19 employment program.

The program, which at its peak paid a third of its employees to stay home, cost more than £ 68 billion ($ 93 billion) – the most expensive single piece of UK economic assistance during the pandemic.

It also marked a drastic change in policy in the UK, where unemployment benefits are low by European standards.

“I think it was an absolute lifesaver … and was exactly what the government had to bring in,” said Sabby Gill, executive director of HR software company Thomas International, which had employees on leave earlier this year.

The approach to pandemic employment support in the UK and elsewhere in Europe was different from the United States, which increased unemployment benefits sharply but made much less effort to maintain the link between employers and workers.

Other European countries with a more tradition of short-time working programs, such as Germany, are maintaining holiday support for longer, at least for sectors that are more severely affected.

However, with employers reporting record job vacancies – and an acute shortage of labor such as truck drivers – most observers believe the UK is right to end its program on September 30th.

“Now we need to focus more on active policies that help people take over the jobs available, rather than passive policies that pay people not to work,” said Tony Wilson, director of the Institute for Employment’s think tank Studies.

However, the short-term effects of the expiry of the program on unemployment and the economy in general are unclear.

Last week the Bank of England called it a major source of uncertainty in its deliberations on when to raise rates, and Governor Andrew Bailey said in a speech on Monday that the situation is puzzling to central bankers.

Policymakers had “disagreements” on the likely path of unemployment and wanted to wait for data on the impact of the program’s expiry, as the minutes of their September meeting showed.

Official data shows 1.56 million jobs were fully or partially on leave at the end of July, up from a high of 8.86 million in May 2020 shortly after the program launched. Of these, a little more than half were on full leave, while the remaining employees had part of their working hours before the pandemic.

A more timely – but approximate – employer survey by the Office of National Statistics suggests that there was not a large drop in the total number of vacation days in August, as between 0.3 and 0.8 million people were completely unemployed.

Wilson believes the number of people who become unemployed on October 1 is at the lower end of that range, in part because some had part-time jobs while on vacation while others left the job market.

The UK’s unemployment rate was 4.6% in the three months to July, up from 4.0% before the pandemic. But the “inactivity rate” – people of working age who study full-time, are long-term ill, look after their families or have given up looking for a job – has risen from 20.2% previously to 21.1%.


Even if the unemployment rate rises, that wouldn’t necessarily stop the BoE from hike rates early next year.

If the new unemployed lack the skills to work in areas where more staff are needed most – from plucking turkey to programming a computer – there is a risk that supply chain bottlenecks will drive inflation higher in the medium term.

“This may feel a lot more like the early 2000s – when there was a strong recovery … and a really significant labor shortage that drove up wages and inflation – than it did in the early 2010s when the opposite happened,” said Wilson .

Similar to the early 2000s and unlike the 2010s, UK companies will not be able to hire workers from poorer parts of Eastern Europe due to post-Brexit visa requirements.

Employers with hard-to-fill tech positions need to be less picky about new hires, said Bev White, CEO of recruitment consultancy Harvey Nash.

“Not all of these jobs require you to be a rocket scientist,” and roles like chatbot managers just required motivation and a willingness to learn something new, she said.

Not every economist believes that the bottlenecks will last. The slump in the labor market will weigh on wages and inflation, as some did after the global financial crisis.

“We expect underemployment to rise sharply when people return to their previous employers but work fewer hours than they’d like,” said Samuel Tombs of Pantheon Macroeconomics, who expects the unemployment rate to peak at 5.0% .

Long-term lessons

Whether or not the vacation schedule should reappear in future UK economic downturns is up for debate.

Britain’s budget deficit soared last year, more than most developed countries, to its highest level since World War II, and Treasury Secretary Rishi Sunak has announced a massive hike in wage taxes to fund higher health and social spending.

For now, targeted support is needed for sectors still affected by the pandemic, such as aviation, said Confederation of British Industry Deputy Chief Economist Anna Leach.

The UK Trade Union Congress wants leave to become a permanent feature of the landscape, allowing companies to delay layoffs and give room for retraining.

The Organization for Economic Co-operation and Development said the government should be open-minded as general unemployment benefits are low in the UK.

In 2019, a Briton with an average salary who became unemployed for three months would have received 34% of their previous earnings in benefits, compared to 68% in France, 59% in Germany and 40% in the United States, OECD shows Data .

Fears that vacation would tie workers to employers with poor long-term prospects seemed misplaced based on early evidence including OECD studies in the UK, Australia and New Zealand last year.

“I would say it worked very well,” said OECD chief economist Alexander Hijzen. “It should definitely be part of the toolkit that governments have to deal with other economic crises, not just pandemics.”

($ 1 = 0.7311 pounds)

Additional coverage from Andy Bruce; Adaptation by Susan Fenton

Our Standards: The Thomson Reuters Trust Principles.

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