Major changes unveiled for furlough scheme- reaction from Business Leaders

Covid-19 News | Employment & Skills | Latest News

From today the government have announced major changes to the furlough scheme, as they will now only pay 70% of wages up to a cap of £2,190 a month.

Employers are already paying employees’ pension contributions and National Insurance, but will now have to pay 10% of salaries as well.

Since March, the Coronavirus Job Retention Scheme has paid 80% of the wages of workers placed on leave, up to a maximum of £2,500 a month.

In October, the government will pay 60% of wages, up to a cap of £1,875. The employers’ share of the bill will then go up to 20% of wages.

The furlough scheme is due to finish at the end of October and Chancellor Rishi Sunak has had to repeatedly rule out an extension to it. Over the next month, there will be more calls for government assistance, as the business community looks to find a way out of the COVID-19 crisis.

Industry reaction

Susannah Streeter, Senior Investment and Markets Analyst, Hargreaves Lansdown

The unwinding of the furlough scheme has been followed by announcements of significant job losses across multiple sectors, particularly travel and retail. It’s little surprise, given that the economy fell into a steep recession between April and June with GDP tumbling by 20.4 per cent. Although growth has been recovering as lockdown restrictions have eased, it has become increasingly clear that the government’s job retention scheme has been masking the damage wreaked by the pandemic on jobs and the wider economy. The most recent ONS data from the Labour Force Survey showed a small decline in workless households between April and June, and only a slight decrease in the number of households with all adults in employment, as the jobs of more than one in four UK workers were mothballed.

As the scheme tapers further at the start of next month and the government stops subsidising wages altogether by October 31st, we would expect economic recovery to lose momentum as businesses across many industries are forced to lay off more staff. In contrast, it will be interesting to see Germany’s growth trajectory, given that Chancellor Merkel has extended the country’s equivalent scheme, known as ‘Kurzarbeit’ until the end of 2021 in a bid to support the economy.’

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  1. Unfortunately whilst Rishi may be saying there will be no extension of the Furlough Scheme he will at some point have to complete a “U” turn. And as this government has already suffered credibility issues with its reversed decisions on the actual pandemic and education in recent months in my opinion there must be a lot of conversations behind locked doors in numbers 10 & 11. The simple answer is that, as usual, the German economy has got it right. Again for what its worth my advice would be to hold the scheme at the October figures plus the ERNHI and Tax contribution also at 60% and ask employers to make the amount up to a minimum of 80%. That way business owners like me will have a chance of getting through 2021 with minimum redundancies. If Mr Sunak doesn’t make the “U” turn then I am going to set up a consultancy advising people on maximising Universal Credit!

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