Furlough Scheme’s End in October And New Lockdown Restrictions to Result in More Job Cuts

Summary

• There is a fear that gradual phase-out of the furlough scheme over a period of next three months would result in additional job cuts
• A research pointed out that furloughed workers were three times more likely to default on various payments including bills, credit cards, and housing payments
• In October 2020, when the furlough scheme finally comes to an end, the government plans to pay only 60 per cent of wages up to a cap of £1,875 per employee.

After announcing several measures to help both people and the businesses to cope up with the losses suffered due to the economic activities, which remained shut during the coronavirus induced lockdown, now, the government focus is on efforts to ease down the steps taken earlier to take the country’s economy back to a degree of normalcy. One such effort is to ease the furlough scheme gradually over a period of next three months when it would finally end by October 2020. However, this winding is being criticised by many experts and economists, and they have warned the government that in the UK, there is still a considerable risk of hundreds of thousands of jobs being lost.

Apart from the ease in the furlough scheme, the additional factor adding to the fear is the new lockdown restrictions in England. It is to be noted that many parts of England would come under the restrictions of lockdown to curb the spread of the highly infectious respiratory illness due to rise in Covid-19 infections. Amid these new prohibitory orders, the government’s plan to ease out and end the furlough scheme to save the jobs could bring adverse results. In addition, the demand has been raised for help to the sectors that are still facing the challenges of recovering from the impacts of the pandemic for the local areas that have come under lockdown. Meanwhile, in order to improve the business prospects of several sectors including the hard-hit high-street retail and hospitality sector, the government encouraged the businesses to allow more of their workforce to re-join work from 1 August 2020.

Furloughed workers more likely to default on bill payments

The government’s steps to bring the economy back to normalcy and phase out the furlough scheme holds importance amid a recent survey that shows in last one month; the furloughed workers were three times more likely to have defaulted or missed on their various bill payments in comparison to people who resumed work as normal. Highlighting that 13 per cent of people on furlough scheme have defaulted on a payment in July 2020, the research stated that these worries came amid rising fears of reported instances of households in the UK increasing their debt during the coronavirus pandemic. Several economic experts have cautioned on a huge unemployment crisis in the UK.

According to the research findings, while five per cent missed a housing payment, the defaulters for a loan or credit card payment comprised six per cent, and there was seven per cent that missed to pay for a bill. The findings also presented worries that the gap will further expand in the coming months leading to the final completion of the furlough scheme in October this year.

Industry thinktanks opinion on Phase-out of the furlough scheme

Various experts stressed on the fact that October end when the scheme would be completed in the same time when most banks and lenders will stop providing payment holidays. The London-based National Institute of Economic and Social Research, an independent charity organisation that carries out academic research of relevance to business and policymakers, feared that approximately 1.2 million workers in the UK would be made redundant by year-end if the scheme ends in October this year.

It has been observed that almost a quarter of companies from various small businesses have already announced job cuts over the past few months. According to the Federation of Small Businesses, this segment will reveal more such news in the next three months. It is noteworthy here that on 31 July 2020, the UK government delayed the opening of venues for bowling, casinos, nightclubs, soft play, and weddings by another two weeks, they together form a significant part of the small business segment of the country. The London-based UKHospitality, a leading hospitality sector trade association, projected that the sector is at risk of losing around half a million jobs. Besides such uncertainty around opening dates affecting the consumer confidence and no change in the furlough scheme, the association feared that the job cuts could double across the wider leisure sector.

Pointing that the furlough scheme has provided the much-needed support, British Chambers of Commerce highlighted that ending of the scheme would result in many companies to opt for insolvency apart from announcing job losses. It stressed that the upcoming autumn and winter period would be tough for businesses, and the government needs to be prepared to tackle the further hit that may arise in some specific communities and industry sectors.

While the government is thinking of protecting some jobs with a one-off payment of £1,000 to every employee who availed the furlough scheme and has been brought back and continue to remain in employment in January 2021, several large employers, including NatWest and Google, have stated that the majority of their workforce would not return until 2021. This further undermined the anticipation that more workers would re-join the offices post easing the guidance on work from home starting 1 August 2020.

Furlough scheme and winding process laid down by the government

Announced in April 2020, the furlough scheme comes under the government’s coronavirus Job Retention Scheme and covers 80 per cent of the wages of the furloughed workers. The 80 per cent is up to a maximum of £2,500 per month. Though initially announced to be completed by end July, the Chancellor Rishi Sunak, extended it to end of October for giving necessary support both to the struggling businesses and their employees.

From the beginning of the month of August 2020, though the government will continue to bear the 80 per cent of staff wages (up to £2,500 per month), businesses will have to contribute towards the payment of national insurance (NI) and pension contributions for their employees, accounting for approximately 5 per cent of employment cost per worker. September onwards, the government further plans to decrease the expenses incurred on wages to 70 per cent at a cap of £2,187.50 per month. The rest or 10 per cent of salary amounting up to £312.50, to complete the 80 per cent of the wages in total with a cap of £2,500, will have to be paid by the employer. In addition, the employers will continue to pay the NI and pension contribution as demarcated for the month of September.

In October 2020, when the furlough scheme finally comes to an end, the government plans to pay only 60 per cent of wages up to a cap of £1,875 per. The businesses will be required to contribute 20 per cent of the salaries or up to £625 to make up 80 per cent in total at a cap of £2,500 employee, and then the scheme will end on 30 October 2020. As announced for the previous two months, the employers will need to continue with the contributions for the NI and pension, which as per initial estimates have so far cost the taxpayer more than £31 billion.

Conclusion

The data released by the Office for National Statistics recently mentioned that the unemployment numbers in the UK have increased by 649,000 workers since the government imposed the lockdown. The ongoing fight against the Covid-19 illness accounted for additional 74,000 jobs last month. The country’s economy has also suffered from the gross domestic product (GDP) falling by 2.2 per cent in Quarter 1 (Jan to Mar) 2020, the largest fall in UK GDP since Quarter 3 (July to Sept) 1979. With such numbers bringing a cause for concern and compelling the government to take some tough measures to revive the economy, it is important that the employers across the sector and the government work together to implement some creative ways to minimise any further losses to the business and save the jobs as well.