Therese Coffey,  the Work and Pensions Secretary, caused a stir this morning when she admitted in a Sky News interview that her department is preparing to deal with as many as four million unemployed in the coming months.

Coffey’s figures are based on unemployment forecasts made in July by the Office for Budget Responsibility. The OBR forecast was part of a worst-case scenario that the unemployment rate would peak at 13.2% in the first quarter of 2021. However, its more optimistic forecast suggested that unemployment could peak at 11.9% in this year’s fourth quarter, or 9.7%. in the third quarter. Even the more optimistic forecast suggest up to three and a half million people unemployed.

If these estimates are accurate, we’re looking a deluge of layoffs as the government’s various furloughing schemes are closed at the end of this month and replaced by the less generous Job Support Scheme.

According to recent figures released by the Department of Work and Pensions, 2.3 million people were looking for work while on Universal Credit as of August 13. If we take this as a proxy for unemployment it gives us a rate of 7.3%.

How much higher these numbers are set to rise is unclear. A large proportion of the rise may be due to the furlough becoming less generous on August 1. Since then unemployment could have continued to rise, or stabilised thanks to various factors such as the push to get workers back into office and the relative success of the Eat Out to Help Out Scheme.

Under the new Job Support Scheme system companies are being subsidised to help keeping on employees and switching them to part-time work. The companies will pay employees for the time worked,  while they and the government will both pay one third of the hours not worked. Empoyers are left paying much more to keep on employees than they were under the furlough scheme.

Inevitably, this change over will lead to more job losses. When announcing the new scheme, Chancellor, Rishi Sunak,  made it clear that the government cannot support every job but hoped to do what it could to protect as many viable jobs as possible.

Hospitality and leisure are the two hardest hit sectors with thousands of jobs already lost. The combination of the new 10pm curfew and the new part-time working scheme is likely to see many more jobs be shed.  Under the JSS it costs businesses more money to employ two workers working half their usual hours, than one worker working full time. The obvious incentive is to lay off one worker and keep the other. If firms refrain from doing so it will likely be because their employees are high-skill an/or they have invested in training them.

An attempt to offset another jobs cull is the £1000 bonus for every furloughed worker continuously employed until the end of January 2021 will likely have a limited effect. According to calculations by the Resolution Foundation, workers need to be earning under £1,020 a month for the bonus to offset JSS costs, which does seem well aimed at low-paid service workers.

However, workers also need to be earning over £625 for the business to claim the bonus creating a narrow window for businesses, and making it complex for them to assess cost benefits. Those that are retained are then liable to being laid off once their employed has cashed in the £1,000 unless the economy has picked up substantially by then.

The self-employed are also facing pressure. During the first six months on the pandemic grants given to them covered 70-80% of their usual profits. This is dropping to 20% in the first three  months, with another grant after that. While the figure is supposed to match the level of support given to employees benefitting from the JSS functionally it works out to a lot less. The blindspots in the programme that is now being replaced are also not being covered, with the newly self-employed and those who paid themselves via dividends as opposed to a salary receiving no support.

With the outlook so grim, it is no surprise the government is preparing for the worst.  .