Chancellor Rishi Sunak has revealed how the £10billion-a-month furlough scheme will evolve in the coming months, how businesses will have to contribute more and when it will end.
He has also announced more help for self-employed workers.
We look at what the new ‘flexible furlough’ will mean for workers, businesses – and the taxpayer.
Chancellor Rishi Sunak has revealed how the £10bn-a-month furlough scheme will evolve in the coming months, how businesses will have to contribute more and when it will end.
What will happen to workers on furlough?
They will continue to receive 80 per cent of their pay – up to £2,500 a month – until the end of October, which is more generous than had been expected.
The Chancellor also said they will be allowed to return to work part-time from July without risk of losing out financially, rather than August as initially suggested. Officials added that this was due to businesses asking for greater flexibility to get staff back to work.
What about self-employed workers?
Previously the Government’s rescue package, announced in March paid out a grant of 80 per cent of self-employed workers’ average profits up to £2,500 a month for three months, based on their tax returns.
The announced extension to the scheme, which has seen 2.3million people sign up and claim £6.8billion, comes with a taper similar to the Treasury support for employees.
The new grant will be worth 70 per cent of a self-employed workers’ average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £6,570 in total.
Including the first grant in May, the maximum amount self-employed workers can receive is £14,070 each.
Is that enough?
Jane Tully of the Money Advice Trust said that ‘the government should be congratulated for taking a gradual and cautious approach to withdrawing these temporary measures’.
But she added that, ‘Gaps in the government’s support for the self-employed remain unaddressed – including owner-directors who receive most of their income through dividends, and the newly self-employed. It’s not too late for the government to act on these issues – as the Scottish Government has for the newly self-employed – and we would urge them to bring forward rectifying measures as soon as possible.’
The Federation of Small Businesses chairman Mike Cherry said the self-employed community would be ‘greatly relieved’ at the removal of the end of May cliff-edge, but called on the Government to extend the scheme to limited company directors and those who became self-employed after the end of the 2018-19 tax year
Numbers furloughed could surge further in the coming weeks, experts warn, as firms rush to qualify for ongoing subsidies.
Can furloughed employees return to work or take a job elsewhere?
Yes. In a victory for business groups and unions, which have both called for the furlough scheme to be made more flexible, employees will be able to return to work part-time from July, a month earlier than initially expected.
They will also be able to go back to work without losing any money from the Government.
The Institute of Directors has said that one-third of those it polled said they would bring the majority of their furloughed staff back part-time if they were allowed under the scheme.
The general secretary of the Trades Union Congress Frances O’Grady said the announcement ‘will help employers gradually and safely bring people back to work, protect jobs and support the economy to recover.’
As long as employees don’t return to normal hours, companies can decide the hours and shifts employees work on their return.
The Treasury said: ‘Individual firms will decide the hours and shift patterns their employees will work on their return, so that they can decide on the best approach for them – and will be responsible for paying their wages while in work.’
Could more workers be furloughed?
Martin Chitty, employment partner Gowling WLG, observes that to benefit from ongoing support ‘employers must have been using the scheme and have staff on furlough on or before 30 June and the furlough must have started by 10 June’.
‘This may lead to a spike in new furlough claims over the next two weeks so that employers get in before the cut-off date,’ he added.
‘Many businesses are already looking to business “post-Covid” in terms of size and shape and some, but not all, may be tempted to defer decisions on resizing and rely on support from the Job Retention Scheme.’
Britain’s national debt is set to hit £2trillion for the first time as the cost of the Covid-19 pandemic soars.
Will the Government continue covering the cost?
Currently, the Treasury pays 80 per cent of furloughed people’s wages, up to £2,500 a month – with employers having the option to top up some or all of the rest.
The Government will fund the furlough scheme, which has supported seven million jobs at a cost of £10billion a month, until the end of July.
From then it will be tapered.
There were suggestions that companies would have to foot a substantial proportion of the bill for furloughed employees’ wages from August – but companies will only have to pay employer national insurance and pension contributions for those on furlough at that point.
In September, bosses will also have to pay a further 10 per cent of a furloughed employee’s wages, with the Government covering 70 per cent up to £2,190 per worker.
This will rise to 20 per cent in October, with the Treasury picking up the remaining 60 per cent up to £1,875.
The Government said this represents 14 per cent of the gross employment costs for September and 23 per cent in October.
Future claims from businesses for furlough money from July can only be made by employers using the scheme already.
How much will the furlough scheme cost the taxpayer?
Some £15billion has been paid out so far. The Institute for Fiscal Studies think tank said the combined cost of the furlough and self-employment support schemes could now ‘easily breach’ £100billion.
The expense will fall as more parts of the economy reopen and staff can return to work – but there is a danger that employers will rush to furlough more staff in the coming weeks to qualify for ongoing support.
Nimesh Shah, a partner at the firm said the 10 June deadline for eligibility under the new scheme ‘could result in a wave of new registrants of workers which may not have otherwise been placed on furlough’.
He added: ‘The Government needs to be wary of more workers being placed on furlough, which will increase the cost of the scheme. Also, there will be a natural hit on productivity if workers are being unnecessarily placed on furlough because businesses want to take advantage of the flexible furlough arrangements.’
Britain’s national debt is set to hit £2trillion for the first time as the cost of the Covid-19 pandemic soars. The grim milestone will be breached next month, according to projections from the Office for Budget Responsibility.
That would put the debt at more than 100 per cent of national income for the first time since the end of the Second World War.
Can we expect to see furlough extended beyond October?
It’s not impossible that the Chancellor will U-turn on previous statements that this a hard deadline if the economic outlook is particularly dire.
But at the moment, the answer is No: the scheme will end on Halloween but officials are keen to stress there are other measures in place to support businesses and workers.
What about pension contributions after August?
Nigel Peaple at the Pensions and Lifetime Savings Association said the Treasury had so far given vital support to furloughed workers’ pension contributions, which has ‘no doubt eased financial hardship and anxiety for the millions affected’.
‘However, this support will cease from 1 August,’ he said. ‘While this will place some financial strain on employers, we recognise that the support under the furlough arrangement needs to be reduced over time, and this multi-step plan should give most employers and schemes time to plan and adjust.’
Will there be mass redundancies?
The latest jobs figures showed the number of people claiming unemployment benefit soared to 2.1 million in April. The jump of 856,500 claims reflected the impact of the first full month of lockdown, the Office for National Statistics said.
That’s an unemployment rate of nearly 4 per cent.
Jagjit Chadha, director of the National Institute of Economic and Social Research, has said that, ‘We can reasonably expect unemployment to rise very quickly to something over 10 per cent – something we haven’t seen since the early 1990s.’
Mr Shah says that with so much uncertainty around the economy, ‘some businesses will be left fearing the worst for when the Government money runs out’.
‘Businesses in tourism, leisure and hospitality are some of the hardest hit, and there is still no plan from the Government on when they will be able to re-open, and even then, it is unknown what the trading conditions will look like as people cautiously make their way to restaurants, bars and hotels,’ he added.
Unions are warning companies will start sacking staff as soon as the money dries up. Airlines have already laid off staff and warned more job losses are inevitable, and the Government has pointed out not every job can be saved.
Officials are expected to present revised figures next week.
Has the Government got a plan to deal with this?
During the Downing Street press conference the Chancellor promised to address the looming employment crisis with a scheme to create additional jobs.
The FT later reported that Mr Sunak is racing to build a £100billion job creation scheme focussed on the infrastructure and green energy sectors.
What if my employer wants me to go back to work but I don’t want to?
This is a complex and fraught subject, which we deal with in detail here.
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