It's not just a second wave of the coronavirus we're facing, but of unemployment too
If employers know that the government’s payroll support will be suddenly cut off at the end of June it’s inevitable that many will be thinking of starting to shed staff now
The historian AJP Taylor argued that the First World War was caused by railway timetables.
He meant that physical limits on the ability of states to move troops rapidly around the continent in railway carriages meant there was an inexorable logic to the German decision to launch a pre-emptive invasion of France once a spark had fallen into the keg of European geopolitical gunpowder.
Now that may or may not be true. Yet there’s certainly an insight there into the way that bureaucratic or legal timetables can shape real events, sometimes with tragic consequences.
Under UK employment law, if an employer intends to make more than 20 employees redundant it must notify the authorities at least 30 days in advance and consult with the workforce over that period.
The government’s Covid-19 furlough scheme – whereby the government will cover 80 per cent of an individual worker’s wages through this crisis – has been extended to the end of June.
But work back 30 days from the end of June and you have an effective decision point for firms at the end of May.
For firms that might want to make more than 100 employees redundant the legal consultation period is longer. They would need to make a decision on whether to start the process in the next fortnight.
The furlough scheme – officially the Coronavirus Job Retention Scheme – is likely to prove expensive for the public purse. Since it launched on 20 April more than £4.5bn has been committed. The Office for Budget Responsibility has pencilled in a cost of £42bn over three months.
Yet it’s also good value for money. Some four million workers are already covered by it – more than a tenth of the workforce. Unemployment is likely to spike horribly over the coming months – but this scheme should help keep a lid on those rises in the immediate term.
The logic of furlough – keeping workers attached to their employer through this crisis so the business can restart operations rapidly when it’s over – is powerful. It’s preferable to mass redundancies now and attempted mass re-hirings later. When employees leave companies the workers lose a salary, but the company also often loses the skills and knowledge of that particular worker which are matched to that specific firm.
But the nature of this crisis for many businesses is overwhelming uncertainty. They don’t know when they will be able to restart operations. They don’t know what level of demand there will be for their services or products will be when lockdown eases.
It’s not pleasant, but it’s also inevitable that managers will be thinking about shedding staff in order to reduce their fixed costs heading into that uncertain future. And if they know government payroll support will be suddenly cut off at the end of June it’s inevitable that many will be thinking of starting to shed staff now, because of that consultation timetable.
We fear a second peak of the virus later in the year after the lockdown is eased. But we should also fear a second peak of redundancies too.
Businesses are pressing the government to extend the furlough scheme beyond the end of June for firms that need it, possibly for a further three months. Treasury civil servants will be loath to do so. They have already written more taxpayer cheques in this crisis than they ever feared possible.
Yet ministers must beware false economies – and remember the potentially destructive power of timetables.