The Treasury select committee has called on the government to consider a targeted extension to the furlough scheme instead of allowing it to expire as scheduled next month.
The committee warned there would be a risk of mass long-term unemployment and hard-hit companies could go out of business if the furlough support scheme was to end for all on October 31, as planned.
In its second report of its inquiry into the economic impact of coronavirus, published today (September 11), the committee said it was unclear how the Job Retention Bonus, a one-off £1,000 payment to employers for every employee previously claimed for under the furlough scheme, represented value for money. It said most of the funds would be spent on workers who would be kept on regardless.
The MPs said chancellor Rishi Sunak must instead carefully consider whether a targeted extension of the Coronavirus Job Retention Scheme, in which furloughed workers receive 80 per cent of their pay up to a maximum of £2,500 a month, is required, as this would target people who would otherwise be left unemployed.
Treasury select committee chair Mel Stride, said: “Our second report of the inquiry focuses on emerging challenges as lockdown measures are lifted.
“One such challenge is to target assistance effectively at those businesses and individuals who need it. The chancellor should carefully consider targeted extensions to the Coronavirus Job Retention Scheme and explain his conclusions.
“The key will be assisting those businesses who, with additional support, can come through the crisis as sustainable enterprises, rather than focusing on those that will unfortunately just not be viable in the changed post-crisis economy.
“This requires a very difficult set of judgements; it is where careful analysis and creative thinking will be critical.”
The committee also noted that for many businesses it remains unclear how the government expects them to pay back any loans in the future.
It warned that small businesses struggling with debt will prolong the recession, adding it was in the government’s best interest to come up with solutions to ensure “the recapitalising of their balance sheets”.
The committee said a plan of action must be outlined within the next three months so that businesses have more clarity.
A possible solution could be to introduce a contingent tax liability or student loan type structure, where repayments are conditional on companies demonstrating appropriate financial health, the committee suggested.
The report also called on the chancellor to demonstrate how he expects to get government finances back to pre-Covid levels to pay off any debts.
It stated: “The milestones on that roadmap will need to be flexible—tax increases imposed too early are like to stifle economic recovery.
“A reassurance that the government intends to take steps to ensure fiscal sustainability in future will underpin market confidence and reduce uncertainty for households and businesses that may fear immediate tax rises.”
In addition, the committee said the government should not be afraid to break manifesto promises, especially when it comes to the pensions triple lock, which guarantees that pensions will increase by whichever is highest out of average earnings growth, inflation and 2.5 per cent.