By Andy Bruce and David Milliken
LONDON, July 28 (Reuters) - British finance minister Rishi Sunak should extend the government's job retention scheme until the middle of next year to stop a surge in unemployment to levels not seen since the early 1990s, a top think tank said on Tuesday.
The National Institute of Economic and Social Research (NIESR) said the furlough programme for workers at companies hit by the coronavirus outbreak should run until June 2021. It is due to wind down at the end of October.
"The planned closure of the furlough seems to be a mistake, motivated by an understandable desire to limit spending," NIESR deputy director Garry Young said.
"The scheme was intended by the Chancellor to be a bridge through the crisis and there is a risk that it is coming to an end prematurely and this increases the probability of economic scarring."
Earlier this month Sunak said calls for an endless extension to the furlough programme were "irresponsible" and brought in a scheme to pay employers 1,000 pounds for each worker they retain following furlough.
Sunak's deputy, Chief Secretary to the Treasury Steve Barclay, said on Tuesday that extra "targeted measures" to help workers in especially hard-hit sectors werepossible but a further wholescale extension was not.
Spending on the Coronavirus Job Retention Scheme, which has supported 9.5 million jobs and is the costliest single government COVID relief measure, has reached 31.7 billion pounds ($41 billion) so far.
NIESR said unemployment looks set to rise to almost 10% of the workforce by the end of this year if the furlough scheme shuts as planned - similar to forecasts from the Bank of England and the government's own budget watchdog.
By contrast, extending the scheme into 2021 would be "relatively inexpensive", preventing a rise in joblessness and might pay for itself if it prevented people becoming unemployed long-term, NIESR said.
But Barclay said at an event hosted by a centre-right think tank, Onward, that workers were likely to lose their skills and fail to develop new ones if they spent more than eight months on leave, waiting for jobs that might never come back.
"The rationale behind the furlough scheme was about maintaining the link with the job. And actually if you stretch the elastic of that too long... it is not good for them, never mind the debate on the financial side of it."
($1 = 0.7727 pounds)
(Editing by Timothy Heritage and Gareth Jones)
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