The government’s furlough scheme has been essential for many over the past 18 months, allowing those who’s jobs have been affected by Covid to continue bringing in an income.
It has also meant that companies could keep their employees on the books ready for reopening, helping to avoid the staffing crises seen it some areas.
However, that support is being wound down, with the furlough scheme due to end completely by September this year. The government is estimated to have spent over £100bn on support for jobs during the pandemic, and they’re now planning to take a step back.
The Bank of England has suggested that UK banks will need to play their part in helping both personal customers and businesses over the coming months. Their most recent financial stability report states that our banks have both the capital and the liquidity to support the economy as it begins to recover. Effectively, this means that they have the cash on hand to be able to provide good value loans to those who need them.
The report states:
“Households and businesses will need continued support from the UK financial system as the economy recovers and the Government’s exceptional support measures unwind over the coming months. (…) Major UK banks and building societies have been resilient to the challenges posed by Covid and their capital and liquidity positions remain strong.”
The crucial thing will be to ensure that households and businesses across the UK don’t suddenly fall into difficulties when the safety net of furlough is pulled away. We know that many people have struggled with their essential costs over the past year, and it will be important to find ways to keep people on their feet.
This will be tricky, as the cost of Covid means that the government is now facing a level of debt not seen since the early 1960s. The Office for Budgetary Responsibility, a UK-based financial watchdog, has suggested that this puts our public finances at risk, as the government are in a tricky situation of having to decide which services to prioritise.
We will also have to find a way to deal with ongoing recovery costs – such as clearing the backlog of NHS patients waiting for essential procedures, funding catch-up classes for schoolchildren and maintaining test and trace services. Currently, it is unclear how the government plans to pay for these essential services.
On a more positive note, the UK economy is bouncing back a lot quicker than expected now that many businesses have been able to start trading again. This will be good news not just for the businesses themselves, but also for the thousands of people across the country currently looking for work. More people in work also means more tax revenue for the government – and this is the money that will be used to help ensure that Covid recovery costs can be covered.
If banks are able to step in and provide a financial cushion for those who are still struggling, then the road to recovery might not be quite as bumpy as many initially feared.