Covid-19: furlough scheme extension could cost £70bn

The added support of the Chancellor’s extension to the Coronavirus Job Retention Scheme could only be available to companies ‘currently using’ the scheme, according to Blick Rothenberg

So far, some 7.5m employees have been furloughed, at a cost approaching £10bn. The expected costs to the end of July are likely to be around £50bn, with the extension at a reduced level to the end of October perhaps costing a further £20bn, according to Blick Rothenberg. These sums amount to around 10% of total government receipts.

From the government announcement, it is known that:

  • support will be continued to the end of July in full, with employers required to contribute after that date;
  • part time working will be permitted, but only for some employees; and
  • the same level of overall support – 80% of wages up to a maximum of £2500 a month – will be maintained.

Heather Self, partner at Blick Rothenberg, said: ‘It is going to be a turbulent time for the labour market in the Autumn. Some sectors, such as the hospitality and tourism sector, are likely to see significant redundancies, while others such as construction and financial services will be relieved to see a gradual winding-down of support.’

As Britain seeks to get back to work, the pressures on different sectors will be very uneven. While some sectors, such as construction and financial services, are getting back to work, others such as leisure and hospitality will be much slower to recover.  And the position in the tourism and heritage sectors is likely to become critical if they lose the whole of the Summer season.

Self said: ‘Enabling part time work is welcome, as it will permit a gradual return to work. But the Chancellor said this would only be available to businesses “currently using” the scheme – it is not clear what the cut-off date will be for businesses still considering whether they need to furlough employees.

‘Additional support beyond the furlough scheme will be needed for a long time – whether loans such as the Coronavirus Business Interruption Loan Scheme (CBILS), or grants, or incentives such as an increase in the Employment Allowance to encourage employers to maintain their staff levels, or even take on new employees.’

What was actually said?

Carolyn Brown, employment legal partner at RSM, said: ‘Businesses should take note of what Mr Sunak actually said yesterday. He referred to this extension applying to those currently furloughed.

‘Some employers have chosen for good operational reasons to rotate their employees who are furloughed. It may be that this ongoing support for those returning to work after July on a part time basis will not apply to those who have not been furloughed throughout the entire scheme period. Or at least not to those who were not furloughed on 12 May when the Chancellor made his announcement.

‘This would appear to limit the continuation of the furlough scheme to those businesses, such as in the hospitality sector, who have not been able to operate at all. If we remember back to 20 March when the scheme was first announced, this was exactly the basis upon which the scheme was initially introduced. From 4 April the wording was changed to apply to those businesses “severely affected”.’

The government press release also stated that from the start of August furloughed workers will be able to return to work part time, with employers being asked to pay a percentage towards the salaries of their furloughed staff.

‘Perhaps the weaning off will not only be tapered as to contribution amounts but it may also only be maintained for those businesses where it is most needed’, added Brown.

The release also says the extension will see workers ‘continuing to receive 80 per cent of their current salary’. As many employers have not topped up the 80 per cent government contribution to 100 per cent, it may be that employees are at risk of only receiving 80 per cent of their currently reduced salary.

Full details on how the furlough scheme will work from August to October will be announced by the end of May.

Further reading:

Covid-19: furlough scheme to run till October

Zak Jakubowski |Reporter, Accountancy Daily [2019-2021]

Zak Jakubowski was a reporter at Accountancy Daily, published by ...

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