At the beginning of this month, the government started to remove a number of business support measures. Business rates exemptions and VAT deferrals ended on 1 July, while the Coronavirus Job Retention Scheme (furlough scheme) began winding down on the same day.
The furlough scheme has been widely credited with helping prevent a more pronounced spike in unemployment. The most recent data suggests that around 6% of employees, or 1.5 million people, were on furlough in early June. This is the lowest number since the onset of the pandemic and economists now believe that unemployment will rise more modestly than initially feared when the scheme ends on 30 September.
Phasing out the scheme, though, will clearly have a major cost impact on many employers. Since last March, the government has paid 80% of an employee’s wages for hours not worked (up to a maximum contribution of £2,500 per month), with employers only picking up the bill for employer National Insurance contributions (NICs) and pension contributions since last August. This situation changed on 1 July and is set to alter again from 1 August.
National Insurance contributions (NICs) and pension contributions since last August. This situation changed on 1 July and is set to alter again from 1 August.
Furlough scheme: Government and employer contributions
|Government contribution: wages for hours not worked||80% up to £2,500||70% up to £2,187.50||60% up to £1,875||60% up to £1,875|
|Employer contribution: employer NICs and pension contributions||Yes||Yes||Yes||Yes|
|Employer contribution: wages for hours not worked||No||10% up to £312.50||20% up to £625||20% up to £625|
According to figures produced by the Institute for Fiscal Studies (IFS), the cost to an employer of keeping a furloughed employee previously earning £20,000 per year rose from £155 per month in June, to £322 in July. It will then rise to £489 per month in August and September.
Commenting on the changes, IFS Senior Research Economist Tom Waters said: “The furlough scheme does need to be wound down as the economy recovers, rather than attempting to keep every job on life support. But this does mean that some will end up unemployed.”