Furlough scheme starts winding down amid warnings over UK's recovery

1 July 2021, 08:19

Chancellor Rishi Sunak is facing calls to extend the furlough scheme
Chancellor Rishi Sunak is facing calls to extend the furlough scheme. Picture: PA Images
Ewan Quayle

By Ewan Quayle

The Government is facing calls to delay the phasing out of its furlough scheme amid warnings of an unemployment spike during the summer.

From today, employers will have to pick up 10% of furloughed workers' salaries, rising to 20% in August and September.

It means the cost of keeping someone who earns £20,000 per year will rise from £155 in June to £322 in July and finally £489 in each of the two following months, according to figures from the Institute for Fiscal Studies (IFS).

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Labour has called on Chancellor Rishi Sunak to extend the scheme, which is expected to hit almost 500,000 firms, because of the delay to easing lockdown restrictions until 19 July.

"A month's delay may seem like a short time but for businesses in retail, hospitality and leisure, legally closed from trading or relying on the summer season, the delay is another blow," said shadow chief secretary to the Treasury Bridget Phillipson.

"The Government must make sure economic measures go hand in hand with public health measures and that our British businesses and high streets are not left out in the cold."

Leading economists have predicted a spike in redundancies over the summer as furlough is phased out, with the latest figures from the end of April showing that 3.4 million jobs were still furloughed.

For those laid off, many will be forced onto Universal Credit and their fates will vary significantly based on their circumstances.

Someone who made £37,500 a year would see their income slashed to only £1 in every £8 that they were paid from furlough - or just £3,885 per year.

But a single parent who rents could see their support drop by a third - a big loss of income but less severe.

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Business groups and unions have also voiced concerns about the Government's refusal to extend the scheme.

British Chambers of Commerce Director General Shevaun Haviland said: "The taper of government payments into the furlough scheme should be immediately deferred until we take the final step in the road map, and further grant support should be extended to the worst affected businesses."

Unite the Union bosses are warning that going ahead as planned will see ministers "pull the rug from under businesses" and leave the purpose of the scheme "wasted".

Assistant General Secretary Steve Turner said: "The country has invested billions in keeping people in work ready for recovery, but if ministers 'pull the rug' from under businesses too soon jobs will go and our heroic national investment will be wasted.

"Nobody is arguing for eternal furlough, but the Government has to work with employers and the trade unions to chart a new course through the pandemic. One that in the longer-term recognises short-term business and economic disruption with short-time working protections, and right now, does least damage to the economy and the livelihoods of millions of working people."

A leading think tank has warned older workers are face a higher risk of long-term unemployment as the furlough scheme winds down
A leading think tank has warned older workers are face a higher risk of long-term unemployment as the furlough scheme winds down. Picture: PA Images

Meanwhile, the Resolution Foundation warned in its report on Thursday that older workers face a high risk of long-term unemployment as the furlough scheme comes to an end.

Research from the think tank found more than 600,000 workers aged 45-64 have been unemployed or are still on full furlough after at least six months.

Younger people have returned from furlough more quickly, it said, resulting in older staff bearing the highest risk of being out of work longer.

Karl Handscomb, of the Resolution Foundation, said: "Reopening the economy has led to a surge in people returning back to work from furlough, particularly young people in sectors like hospitality and leisure.

"But not everyone is back working. Over one in four older workers who were furloughed during the recent lockdown have remained parked on furlough during the reopening, and now face a higher risk of unemployment as the scheme starts to be unwound.

"It's crucial that the Government does it all can to prevent rising unemployment among workers of all ages this autumn when the furlough scheme ends."

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A Government spokesperson said: "We deliberately went long with our support to provide certainty to people and businesses over the summer, and that support, which is a substantial amount of funding, is continuing with the furlough scheme in place until September.

"Recent statistics show there are 7.85 million workers aged 50 to 64 on payrolls - up 181,000 on the year.

"But as we recover from the crisis we're also helping hundreds of thousands of older workers to retrain, build new skills and get back into work through our Plan for Jobs, including our 50 Plus: Choices Offer, the Sector-Based Work Academy Programme, and our Job Entry Targeted Support scheme."