Tomorrow, the government will start to wind down the Coronavirus
Job Retention (furlough) scheme. The latest data – from the end
of April – showed that there were still 3.4 million jobs on
furlough, representing around one for every eight employees
(Figure 1). Some groups are especially likely to be furloughed:
those aged under 25 or over 65, Londoners, women, and workers in
the cultural, accommodation, or food sectors. While the number
furloughed will have fallen as the economy has continued to
re-open, it is likely that millions of people and their employers
will be affected by the phasing out of the furlough scheme. The
Office for Budget Responsibility expect that while the total
gross outlay on the furlough scheme peaked at £10.1 billion in
May 2020, it was still running at £2.2 billion in June 2021.
Since last March, the government has paid 80% of the salaries of
employees (up to a maximum government contribution of £2,500 per
month) – with the employers only having to pick up the (small)
bill for employer National Insurance and pension contributions
since last August. The big change on July 1st is that the
government will only pay 70% of the furloughed employee’s salary,
so the employer has to pay (at least) 10% of the salary
themselves. In August and September, the Government plans that
employers will have to pay (at least) 20% (with the government
picking up 60%). For a furloughed employee previously earning
£20,000 per year, the cost to an employer of keeping them will
rise from £155 per month in June, to £322 in July and £489 per
month in August and September, after which the scheme is due to
end. With the cost of keeping employees on furlough rising, we
therefore expect to see rising redundancies over the summer even
before the final end of the scheme.
The unwinding of the furlough scheme represents a step towards
‘normality’ in the labour market, but it also will mean big
income losses for many of those who end up unemployed unless they
are swiftly able to find alternative employment. In this
observation we discuss the kind of support available for such
workers via other programmes, and what sort of hit to their
income they might see if they do lose their
jobs.
Tom Waters, a Senior Research Economist at IFS 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
and turning to alternative programmes – primarily Universal
Credit. How much support they get depends hugely on their
circumstances – how many children they have, whether they are
renters, how much their partner earns and so on. While some will
be relatively protected, others will find that the transition
from furlough to Universal Credit will mean very large falls in
income indeed. From September that drop will for many be
increased by £20 a week if – as is planned – the temporary uplift
in Universal Credit is allowed to expire at that point.”
ENDS
Notes to editors
The IFS Observation ‘A shock to come at the end of furlough?’ by
Jonathan Cribb and Tom Waters is published on the IFS website
here: https://ifs.org.uk/publications/15501
