Government schemes dreamt up and enacted in haste usually have many flaws

This article only looks at the downside of the furlough scheme, so is not the full and final judgement on its value; it can be used to illustrate how carefully any subsidy scheme needs to be planned if it is not to be exploited in an unintended way; treat the headline as designed to preach to the converted:

UK's erupting fraud scandal confirms furlough was a nonsensical mistake

It has proved unfair, distorting and regressive; we need to replace it now

GUY STANDING18 June 2020 • 3:15pm

We should not be surprised by a report yesterday that one in every three workers put on the government’s furlough scheme has fraudulently been asked to work when the payments are only supposed to be made to employees unable to work at all during the coronavirus crisis. 

The Coronavirus Job Retention Scheme (CJRS), hastily introduced in March by Chancellor Rishi Sunak, is riddled with flaws, of which the potential for fraud was only one.

The CJRS is expected to cost taxpayers over £60 billion by the time it ends in October. So, it is right to question whether this huge sum could have been spent differently to help people more efficiently and equitably. Of course, if you throw money around, some people will benefit, and it will be popular with those who do. That does not mean it is a good policy.

What are the drawbacks? First, the scheme is subsidising employees who would or could have been covered by their firm anyhow or were not at risk of redundancy. This is what economists call the “deadweight” effect of subsidy schemes and all the evidence is that for the CJRS it is huge – perhaps up to half of all those on furlough.

Moreover, it is already clear that many of those put on furlough will lose their jobs when the scheme comes to an end. So the scheme has merely postponed the evil day, at vast cost.

Second, the scheme actively discourages work, which is an economic nonsense. It pays 80pc of a person’s wage or salary up to £2,500, if and only if the worker does not do any work. So many firms that could have gone on operating at reduced capacity will have found it pays them to claim a furlough subsidy for workers to do nothing. When the dust settles, the scheme may be found to be partially responsible for the unprecedented collapse of the economy this year. 

Third is the potential for fraud, which, like deadweight costs, was a Treasury concern from the start. The thousands of reports of fraud received by HMRC may be the tip of the iceberg, since it will pay employers and workers to keep quiet.

Fourth, the CJRS distorts the labour market. Labour needs to move from sectors and firms where demand is falling to where it is rising, perhaps where there is an urgent need such as in the NHS. The scheme inhibits that. If you are paid £2,000 a month to do nothing, why would you move to a job paying less?

Fifth, the scheme is regressive and unfair. It excludes a lot of people who do not qualify, including many who need help most. And it gives most to those who are already paid most, so high-paid workers receive five times as much as those in the precariat, even supposing the latter qualify for the scheme, which many do not.

It is even more unfair to those who lose their jobs who, if lucky, receive a pittance. For low-paid workers, on the edge of unsustainable debt, losing 20pc of their income can lead to destitution, as growing queues for food banks testify.

Instead of treating some employees generously and millions of others meanly, the government should introduce an emergency basic income for everyone, which would be a far better and fairer way of easing coronavirus hardship.  

Guy Standing is author of Battling Eight Giants: Basic Income Now, published by Bloomsbury in March.