UK ministers have been warned that hundreds of thousands of jobs are at risk after the furlough scheme that helped pay the wages of more than 9m workers during the coronavirus lockdown begins to wind down, even as parts of England face new lockdown restrictions.
The easing of the government’s furlough scheme is part of a broader effort to return the British economy to a degree of normality. From Saturday, employers will be encouraged to bring more staff back to their offices to try to boost hard-hit sectors such as high street retailing and dining.
Companies will also start paying national insurance and pension contributions for furloughed staff as part of a phased ending of a scheme that has so far cost the taxpayer more than £31bn.
But, with many parts of England facing the prospect of new lockdown restrictions as coronavirus cases rise, MPs and business groups have warned that the move could backfire. They argue that further economic support is needed for local areas that have been forced back into lockdown and for sectors that are still struggling to recover from the effects of the pandemic.
The changes on August 1 mean that for the first time since the government’s furlough scheme launched in April, businesses will need to carry some of the costs of workers who were sent home during lockdown. The average cost to companies will be about 5 per cent of pre-furloughed pay.
Although many employees have returned to work since the reopening of the retail and hospitality sectors, millions remain on furlough, many of them in sectors that now face longer shutdowns or restrictions that will prevent them operating at full capacity.
The Resolution Foundation, a think-tank, estimates that at least a third, and possibly half, of furloughed workers, including more than 1m in the hard-hit hospitality and leisure sectors, were likely still to be on furlough, raising concerns about the impact of across-the-board increases to employer contributions.
Surveys conducted by the Office for National Statistics suggested that between 3m and 5m people were still on furlough in early July, the RF said, and while some would have since returned to work, a number would be working part time, after the introduction of “flexible furloughing”, with the majority of their pay still supported by government.
Anneliese Dodds, shadow chancellor, on Friday warned chancellor Rishi Sunak that he had “24 hours to change course” or risk the loss of huge numbers of jobs. Ms Dodds warned that Mr Sunak’s plan to withdraw the furlough programme was a “historic mistake that would hand P45 notices to workers across the country”.
She called the easing of the scheme “a python-like squeeze on jobs” for the industries worst hit by the crisis.
The Federation of Small Businesses, a trade body, found that about a fifth of companies expected to cut jobs in the next three months. This comes after nearly a quarter of companies said they had already made redundancies during the pandemic.
“If the rules for business are going to be stop-start, which is understandable, then business support from government needs to reflect that fact,” said Mike Cherry, the FSB national chairman. “It would be wrong to wind down support while restrictions are increased.”
The government on Friday postponed by at least two weeks the reopening of some parts of the leisure sector, including bowling alleys, nightclubs and soft play areas, as well as weddings.
“On the day full furlough ends, we have confirmation that many parts of the sector remain closed,” said Kate Nicholls, chief executive of UKHospitality, which represents the leisure industry.
UKHospitality estimates that half a million jobs are at risk in the sectors without a firm opening date. But it warned that this could rise to a million across the wider leisure sector “with prolonged uncertainty and no change on the furlough scheme as a result of a pause in reopening and any knock-on effect on consumer confidence”.
Furlough “has cushioned the blow, but when it ends we will see significant job losses and many insolvencies”, warned Adam Marshall, director-general of British Chambers of Commerce.
The government is hoping to protect some jobs with a one-off payment of £1,000 for every previously furloughed employee brought back and still employed at the end of January next year. But many economists doubt whether this will be a big enough incentive for employers to pay wages for the three months following the scheduled end of the scheme.
“The winding down of the furlough scheme while activity is still depressed will surely cause the quite small fall in employment so far to turn into a much bigger one,” said Andrew Wishart, at the consultancy Capital Economics.