Leading economists have warned that UK unemployment could return to the dark days of the 1980s, according to a report in The Sunday Times.
A rise to 10% in the unemployment rate this year would see nearly 3.5 million people out of work, similar rates to those experienced three decades ago.
The Resolution Foundation think tank believes high unemployment rates could last for the next five years unless the government follows up the furlough scheme with active labour market measures to get people into work.
Official figures last week provided the first glimpse of the jobless surge to come, with a record rise of more than 850,000 in universal credit claimants, taking the total to 2.1 million last month despite the government’s furlough scheme, which is intended to cushion the impact of the crisis on unemployment.
The foundation said: “Returning to the chronic 10% average structural unemployment rate seen throughout the 1980s could entail a cost to the public finances of about £175bn ($212.91) in lost taxes and higher benefit spending over the next five years.”
To ease the burden on companies after furloughing ends, ministers are mulling reviving the redundancy loan scheme, a rarely used part of the insolvency process that allows firms to take interest-free loans to cover the cost of laying off staff.
READ MORE: Employers to pay up to 30% furloughed wages
The job retention scheme will continue until October, but the level of state support will be reduced from August, after which analysts expect a spike in redundancies.
The loan scheme lets companies borrow public funds to cover redundancy costs that might otherwise send them into administration.
From August employers will be expected to pay up to 30% of furloughed wages in new plans drawn up by the government.
The Treasury will be asking businesses to cover 20% to 30% of people's wages in the job retention scheme.
The initiative was extended by four months on 12 May in a bid to prop up the UK economy during the coronavirus pandemic.
Chancellor Rishi Sunak is expected to announce the changes next week.
He previously said the furlough scheme would be in place until at least October with companies asked to "share" the cost from the start of August.
Sunak said on Friday that Britain was facing a “very serious economic crisis” and jobs would be lost in the “days, weeks and months to come.”