The Institute for Fiscal Studies have stated that the Chancellor should start the process of “weaning the economy off blanket support” by phasing out the furlough scheme. 

Due to the Chancellor’s upcoming Budget which is announced next month, the thinktank IFS has encouraged Chancellor Rishi Sunak to slowly withdraw the furlough scheme.

Extending the Coronavirus Job Retention Scheme will “impede necessary economic adjustment”, the thinktank has warned. It further suggests that economy cannot improve unless restrictions are withdrawn.

In place of furlough, the IFS instead suggests offering targeted supported for sectors where restrictions are not likely to ease soon such as the aviation industry.

The statement also acknowledged the “triple threat” of Brexit, recovery from the coronavirus and the move towards Net Zero. It stated that Mr. Sunak must set out plans for how to help the economy recover and adjust to a new normal.

It further urges Mr. Sunak to recognise how different groups, most notably low income and young people, have been impacted by COVID-19 and how this fallout can be offset.

To tackle this, the IFS has suggested that the Kickstart Scheme and other schemes should be extended beyond December 2021 to support people who are particularly vulnerable to long-term unemployment.

It has also suggested that cutting employers’ National Insurance Contributions could lead to a boost in job creation. Conversely, the thinktank said that raising the amount of NIC that employees and the self-employed contribute could raise revenue and be designed to reduce the current tax penalty on standard forms of employment.

Paul Johnson, IFS Director, said:

This will be just Rishi Sunak’s second Budget, but his 15th major fiscal announcement. In it he needs to strike a balance between continuing support for jobs and businesses harmed by lockdowns, and weaning the economy off blanket support which will impede necessary economic adjustment. Any significant continuation of the furlough scheme must be limited and carefully targeted.

In the recovery phase he needs to support jobs and investment, but also crucially needs to recognise and address the multiple inequalities exacerbated by the crisis.

This guidance largely contradicts what other organisations have urged Mr. Sunak to do. The Institute of Employer Studies encouraged flexible furlough to be extended until autumn whilst the Confederation of British Industry told the Chancellor to announce an extension to the furlough scheme prior to Budget being announced.

A poll conducted by HRreview revealed that almost three-quarters of HR professionals feel that furlough should be extended based on the circumstances whilst almost a fifth (17 per cent) believed it should be extended until the end of 2021.