Coronavirus: Job cuts warning as 600,000 roles go in lockdown

Restaurant workerImage source, Getty Images

The number of workers on UK payrolls dived more than 600,000 by May compared to before lockdown, official figures suggest.

The number of people claiming work-related benefits, which includes the unemployed, was up 126% to 2.8 million.

The early estimates reflect the impact of around six weeks of lockdown in which large parts of the UK were shut.

But economists say the full effect on employment will not be felt until wage support schemes end in October.

"The slowdown in the economy is now visibly hitting the labour market, especially in terms of hours worked," said Jonathan Athow, deputy national statistician for economic statistics at the Office for National Statistics (ONS)."

Frances O'Grady, secretary general of the Trades Union Congress, said the labour market was "on red alert".

"We need strong action now to stop lasting economic damage," she added.

Separate figures published by HMRC on Tuesday showed that a total of 9.1 million workers are having their wages paid through the government's furlough scheme - more than a quarter of the workforce.

Why is the unemployment rate still steady?

Overall, the official UK unemployment rate for the three months to April held steady at 3.9% as the massive state wage support in place stopped job losses.

Reflecting that, the ONS said the total number of weekly hours worked in the period dropped to 959.9 million - down by a record 94.2 million, or 9%, on the previous year.

However, the agency said that early estimates from the Pay As You Earn (PAYE) system showed that the number of payroll employees fell by 612,000, or 2.1% in May compared to March, when lockdown was implemented.

And it said there had been a record fall in job vacancies in that period to 476,000 - down 342,000 from the previous quarter - hinting at worse to come.

What do economists think?

Capital Economics economist Ruth Gregory said it was "abundantly clear" that the labour market had weakened dramatically.

"Some of this will surely start to filter through into the actual unemployment figures as the government's job furlough scheme is wound down from August."

Tej Parikh, chief economist at the Institute of Directors, agreed: "The furlough scheme continues to hold off the bulk of job losses, but unemployment is likely to surge in the months ahead."

Yael Selfin, chief economist at KPMG UK, warned that many businesses were expected to bring only part of their furloughed workforce back, while they sought to tentatively reopen after the lockdown.

"Hiring new workers is also likely to be put on hold for some time," she said.

'I've applied for more than 100 jobs'

Image source, Kayleigh Rennix

Kayleigh Rennix has never struggled to find work before. The HR manager from Essex was earning close to £40,000 working in the education sector before she resigned in March, fearing her role was at risk.

Since then she's applied for dozens of jobs, but has had little interest from employers.

"As my leaving date approached, coronavirus reared its ugly head. I would say I've applied for more than 100 jobs and not had many call-backs," she says.

Now the 34-year-old has found herself relying on benefit payments for the first time in her life, and expects to move back in with her parents when her tenancy expires later in the summer.

What do the figures tell us about the future?

Some economists believe unemployment could hit 10% - a rate not since since the mid-1990s - as social distancing rules remain in place and consumers curb their spending.

The Institute of Employment Studies (IES), an apolitical think tank, pointed out that the number of claims for work benefits had risen 1.6 million since March - a rate faster, it says, than during the Great Depression of 1929.

At the same time, it says there are eight unemployed people are chasing every job vacancy in the UK - up from just two before the crisis.

"It's clear too that this crisis is hitting many poorer areas hardest - with coastal towns and ex-industrial areas seeing particularly big increases in unemployment," said director Tony Wilson.

The IES said among the worst hit areas of the UK were:

  • Blackpool, where one in eight residents is claiming work related benefits
  • Thanet in Kent, where the rate stands at one in eleven
  • And Birmingham, where the rate is also one in eleven.

The headline quarterly employment and unemployment numbers remain barely changed, as all the furloughed workers count as having jobs.

The furlough scheme is working in suppressing unemployment and protecting livelihoods so far, the real test of its functioning is what happens now.

The test of it will be whether those jobs remain as the taxpayer wage support is eased away. It requires the government to inject as much confidence as possible, into the minds of employers facing uncertainty and declining bank balances.

But further rescue package and employment support will be required too. The balancing act with the pandemic remains as delicate as ever. As one Cabinet minister puts it - "we need to restart the economy, without restarting the virus".

Media caption,

Restaurant chain owner: 'It's the worst news you can give as an employer'

Which firms are cutting jobs?

A swathe of businesses have announced job cuts as the economy has contracted sharply due to the pandemic, opting not to furlough those workers instead. Examples include:

  • The Restaurant Group, which owns Frankie and Benny's, which expects to cut up to 3,000 workers
  • The UK's biggest builders' merchant, Travis Perkins, which plans to cut about 2,500 jobs, or 9% of its workforce.
  • British Airways, which expects to cut 12,000 jobs
  • BP, which is slashing 10,000 jobs worldwide
  • And jet engine-maker Rolls-Royce is cutting 9,000 jobs, mainly in the UK.

Bosses in sectors such as car making, aviation and hospitality have warned there could be many further cuts without additional government support.

In normal times, the employment rate tells you most of what you need to know about jobs.

But these are not normal times.

With the furloughing scheme keeping people employed, if not working, we have to look elsewhere to get a picture of what's happening.

It's like building a jigsaw, but with pieces from different boxes: surveys, payroll data, jobs advertised, three-month trends and even looking at week-on-week changes.

The picture it builds is different to the headline employment figure but perhaps not surprising: Serious pressure on jobs during lockdown.

What's happening to the wider economy?

Last week, the ONS revealed the UK economy shrank by a 20.4% in April - the largest monthly contraction on record - as the country spent its first full month in lockdown.

That is three times greater than the decline seen during the whole of the 2008 to 2009 economic downturn.

Britain's economy is likely to slump by 11.5% in 2020, slightly outstripping falls in countries such as Germany, France, Spain and Italy, the Organisation for Economic Co-operation and Development has warned.

Meanwhile, the latest furlough figures from HMRC indicate that more than a quarter of the UK workforce is having 80% of their monthly wages, up to £2,500, paid by the government, while they are temporarily off work. Their employer, which chooses whether or not to furlough workers, can top up the remaining 20% if it wishes.

The Treasury also said there had been 2.6 million claims for support grants from the self-employed.

The Prime Minister's spokesman said: "We are seeing the impact of coronavirus on our economy, as is the case in many countries.

"It is starting to show in today's [jobs] figures but our extensive support through the furlough scheme, grants, loans and tax cuts has protected thousands of businesses and millions of jobs."