Devolved governments should be able to launch own furlough schemes - report

Different parts of the country should be able to launch their own furlough schemes if needed, researchers have argued, as they called for the reform of funding arrangements to devolved Governments across the United Kingdom. Credit: UTV

Different parts of the country should be able to launch their own furlough schemes if needed, researchers have argued, as they called for the reform of funding arrangements to devolved Governments across the United Kingdom.

The report, published on Tuesday, said that Scottish, Welsh and Northern Irish Governments should be either given minimum funding guarantees by Westminster or enhanced borrowing powers, if stringent health measures and additional economic support is needed.

It also said there could be a regional furlough scheme under certain circumstances.

And the report's authors, from the Institute of Fiscal Studies, the Fraser of Allander Institute at Strathclyde University, and University of Stirling Management School, also added that good communication and coordination across both the UK and devolved Governments was essential.

David Bell, professor of economics at the University of Stirling, said: "Effective communication and coordination between the UK and devolved Governments is vital for effective policy making given the interactions between funding and policy decisions taken by these two levels of government.

Prof Bell, as well as David Phillips and David Eiser, said that while their report did not take a view on how serious the threat of the Omicron variant was, the rise of the mutant virus or other future outbreak, affected some parts of the UK much harder than others.

They said HMRC should examine the feasibility of making the furlough and self-employment income support schemes available on a geographical basis, and if it is practical without the risk of significant fraud or error, devolved Governments could be given the option of paying for furlough and income support schemes to be reinstated if they want to tighten public health restrictions significantly.

Thresholds for hospitalisation, for example, could also agreed above which the UK Government would pay for the schemes, the report funded by the Economic and Social Research Council said, to provide extra support in areas facing the most serious situations.

Mr Phillips, an associate director at the IFS, said with surging coronavirus rates it was "vital to lean lessons from earlier waves of the pandemic".

"If new policy and spending announcements start to come in quick succession, the devolved Governments should swiftly be given some combination of the funding guarantees successfully deployed last year, and/or enhanced borrowing powers, to allow them to respond in a timely and effective way," he said.

"Without such measures, they could find themselves uncertain about how much funding will be available until announcements are made for England, potentially holding up policy development and implementation."

The report also examined the case for a number of permanent reforms to funding arrangements, which it said would make them more robust in the future.

The Economic and Social Research Council funded paper said that while minimum funding was useful in times of extreme crisis it was not appropriate in normal times.

Therefore, they said, in the long term, an alternative of automatically allowing the devolved Governments to defer the impact of lower-than-expected funding to later years would provide most of the benefit.

Mr Eiser, a knowledge exchange fellow at the Fraser of Allander Institute, said: "Currently, the devolved Governments cannot borrow to fund discretionary resource spending.

"There is a strong case to change this on a permanent basis to provide them with additional flexibility to respond to unforeseen events.

"Set at a modest level, such as 1% of their resource budget, this would pose no meaningful risks to the UK Government's overall fiscal stance or fiscal targets.

"For similar reasons, there is also a good case for extending the devolved Governments' existing - and very restrictive - drawdown limits from their reserves."

A Treasury spokesman said the UK Government had worked closely with devolved administrations, and continued to do so.

"The UK Government's £400 billion Covid support package has supported people, businesses and public services in all parts of the UK, and we have just made £860 million of additional funding available to the devolved administrations to use how they see fit when tackling Covid-19," the spokesman said.