Coronavirus furlough scheme lulling people into ‘false sense of security’, Tory former chancellor warns
Norman Lamont served as chancellor under John Major.
The Government’s coronavirus job protection scheme is lulling the public “into a false sense of security” about the true economic toll of the pandemic, according to a Conservative former chancellor.
Lord Lamont, who served as Chancellor during the Black Wednesday downturn of the 1990s, said the state-backed scheme to pay people’s wages was masking a “pretty horrible” hit to the nation’s economy.
He told the Higginson Strategy podcast: “I think part of the consequence of the furloughing scheme... is to lull people into a false sense of security. I don’t think they really see what is around the corner. And I think what is around the corner is pretty horrible.”
The latest figures show that at least 800,000 employers have so far applied to use the scheme with 6.3m furloughed jobs now covered by the taxpayer.
The current round of the programme ends on June 30, and Chancellor Rishi Sunak this week promised firms that there would be no “cliff-edge” when the furlough scheme is wound down.
But he made clear that officials were already looking at ways to end the programme, and said the Treasury was potentially “spending as much on the furlough scheme as we do on the NHS”.
One of the options being considered by the Treasury is a reduction of the current subsidy to 60% of wages, with further smaller reductions to follow as the economy begins to restart, the Evening Standard has reported.
Other options could see workers receiving a smaller subsidy from the government if they return to work part-time.
Lord Lamont said: “The furlough scheme is very expensive, and I don’t think it can go on for very long.
“Some people sitting at home may not realise, they are not very well paid, they’re getting £2500 a month, they’re not spending much money, so they may feel relatively secure. They may not realise that their jobs have disappeared or are about to disappear or that their firm is in serious trouble.”
But the former Conservative chancellor cautioned against a wave of spending cuts in a bid to reduce the extra borrowing taken on by the Government to try to weather the crisis.
“I think as we recover, the government should be very careful to nurture that gradual improvement in the situation and shouldn’t do anything in terms of reducing the debt that would hold back the recovery,” he said.
The Tory peer added: “Any measures, if they are required to deal with the level of indebtedness... I think should be deferred for later, and you’ve got to let borrowing and indebtedness take the strain.”
He said: “It reminds me of a situation I encountered in 1993. The recovery was just beginning and I announced a series of tax increases in order to reduce the deficit in borrowing, but I said they wouldn’t be implemented for one, two or three years to let the recovery take place on a more elongated timetable. I think something similar will be required when we come out of this situation.”