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Despite the rapid increase in cost of the job retention scheme, which was launched in March due to coronavirus crisis, the chancellor, Rishi Sunak has extended it for employees until the end of October 2020. More than 900,000 companies have availed this scheme and the British governments currently catering to nearly 25 per cent of the private sector employees. According to the scheme, government would be paying 80 per cent of the monthly wages for furloughed employees.
According to some speculations, the government contribution was expected to decrease from 80 per cent to 60 per cent. However, the government contribution has been retained at 80 per cent. The 80 per cent pay level will prevail and people would be able to return to work part-time from August as the United Kingdom prepares a roadmap to ease lockdown. In addition, the employers will have to start contributing for part-time jobs.
The coronavirus job retention scheme is currently catering to around 7.5 million employees, costing the government about £14 billion a month. The British government expects the employers to share the cost of paying salaries. This might be signal that the government would discontinue the scheme gradually in approaching months as it is burning a hole in the government’s pocket and would eventually lead to increasing deficits.
According to the British Treasury, the contribution made by the government, which is 80 per cent of the monthly wage is likely to be replaced gradually, by employers contribution, and the employee would continue to receive 80 per cent of their monthly wage capped at a maximum of 2,500 pounds per month.
The extension of this scheme would discourage the employers to layoff people and protect the economy, while paving a way for people to return to work in a safe and steady manner followed by gradual easing of lockdowns.
How does a Furlough work?
The Job retention scheme will allow companies to furlough staff the British government decides to pay for their wages. The Coronavirus Job Retention scheme was launched in March 2020, aimed at helping employers, whose trading activities are severely impacted amid the Covid-19 crisis in retaining their employees instead of laying people off and protect the economic meltdown in the United Kingdom. Earlier, the scheme was open for four months from the date of launch, i.e. 1st March 2020.
All the employers across the UK would be able to apply for a grant to continue paying their employees salary, provided they have a UK bank account and have enrolled for the PAYE (Pay As You Earn) scheme on or before 19th March 2020. This scheme is likely to benefit the furloughed employees.
Employers can put their employees on furlough and pay them at least 80 per cent of their regular monthly wage up to the monthly cap of £2,500. However, the individuals would still be required to pay for taxes and national insurance as usual. Any UK organisation including businesses, charities, recruitment agencies, public authorities can apply under the furlough scheme.
Th employers would need to identify the employees who would be furloughed and should communicate the same to them. The employers then need to work out the claim amounts for the employees and notify the HMRC.
What is meant by Furloughed employee?
A furloughed employee is placed on leave (absence) temporarily for at least three consecutive weeks; however, he would continue to represent his employer. This scheme will honour all the type of contracts for furloughed employees. Whether it is par-time, full-time contract, employees on flexible contracts or even apprentices, all the employees on PAYE payroll are eligible for this scheme. Foreign nationals on all categories of visa are eligible for this scheme.
Employees who are self-isolating or are on sick leave due to the novel coronavirus are eligible for SSP (Statutory Sick Pay). Employees on sick leave cannot claim under the furlough scheme. Employees who have caring responsibilities resulting from Covid-19 and are unable to go to work can be furloughed. Employees who are working on reduced pay or hours are not eligible for this scheme. All kinds of employees who are paid through PAYE are likely to benefit under the furlough scheme.
Other measures taken by UK to protect its economy in response to Covid-19
A fund of £12 billion was earmarked for sustaining businesses during the spread of coronavirus in the 2020 Budget unveiled in March 2020. SME’s and other similar businesses are of huge importance in a country’s economy as they provide a huge number of employment opportunities. Even after the lockdown eases, the SME’s would have an important role to play in the resurrection of the British economy as international trade is likely to resume a bit later.
The British government announces CBILS (Coronavirus Business Interruption Loan Scheme), according to which, SME’s can borrow up to £5m for a maximum tenure of six years, however, they must have a turnover of less than £45 million to be eligible to apply. Under this scheme, the businesses can forego interest payments for the first 12 months and the British government will guarantee 80 percent of each loan. UK Banks were issued guidelines in this regard to relax collateral rules and keep interest rates modest.
Another initiate by the British government to protect small businesses such as florists. The loans of up to £50,000 were backed by the government. For the first 12 months, the government will cover interest payments for these loans. These loans were offered at an attractive interest rate of 2.5 per cent and are supposed to be re-paid without any processing charges over a period of 6 years. These smaller loans are fully backed by the British government.
For the self-employed, the government offers a taxable grant worth 80 per cent of average monthly trading profits capped at £7,500 for three months under the SEISS (Self-Employment Income Support Scheme)
In addition, Bank of England (BoE) has asked banks to relax the eligibility criteria, specifically collateral requirements for loan application by UK businesses. Also, BoE has infused a capital of £200 billion into the system to provide stimulus for businesses and investors.
BoE is likely to purchase short-term debt instruments such as commercial papers, certificate of deposits from firms having a decent credit rating. Furthermore, the Bank of England has reduced its interest rates from 0.75 to 0.1 per cent during the lockdown induced by the Covid-19 and could expand monetary stimulus in the approaching moths as and when required.
