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Furlough: The Aftermath

The furlough scheme that has kept many people afloat during the Covid-19 pandemic is due to close at the end of September. The government introduced the scheme in March 2020 to help more people keep their jobs when the coronavirus crisis began. Furlough has gradually been wound down this year.

Furlough

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When first launched, the government paid 80% of wages to affected workers. This completely removed the burden of paying staff wages from the employer during the lockdowns, when non-essential businesses were closed altogether for many months.

Furlough was aimed at keeping people in work during the pandemic, rather than having more employees made redundant and joining the dole queues because their employer couldn’t afford to keep them on.

Employers have been gradually asked to contribute more to employee salaries recently. However, the complete closure of the scheme, at the end of September, will be a blow to the businesses and workers who have been kept afloat.

Coupled with the fact the government is scrapping the extra £20 per week for Universal Credit claimants, which was introduced at a similar time, it will be a double whammy. Universal Credit is a benefit paid to unemployed people, or those in low-paid or part-time work, to boost their income.

It encourages people to find work, rather than staying on benefits because they feel they will be better off. Losing £80 a month Universal Credit and the furlough scheme simultaneously is bad news for Brits, who are already severely impacted by the pandemic.

 

How has furlough changed?

While the whole world has been impacted by Covid-19, many UK residents have relied on the furlough scheme at least once during the pandemic. From 1st July, the government paid 70% of employee salaries, with the employer paying 10%. The employees would still receive 80% of their salary, up to a monthly limit of £2,500.

August and September, the final two months of furlough, the government’s contribution will reduce to 60% and employers will be required to pay 20%. In The limit for the monthly wage will remain at £2,500. Employers are also required to pay National Insurance and pension contributions for their workforce.

With the news of the so-called “freedom day” on 19th July, the government envisages most furloughed workers will be returning to work. The aim is to make employers take back employees full-time as soon as they can. From 1st October, there would be no more government support for furloughed workers.

However, business leaders fear the end of furlough will mean some are made redundant, as beleaguered employers won’t be able to afford to keep people on.

 

What is the amount claimed on the furlough scheme?

The furlough scheme has already cost the nation an estimated £64 billion, according to figures compiled by Statista. At its peak, the scheme supported 1.85 million employees in the UK retail sector alone during the lockdowns. The most recent figures for this sector, from 31st March 2021, showed 825,600 retail employees were still on furlough.

In the accommodation and food services sector, 1.65 million employees were supported by furlough. According to the government website, a “provisional estimate” showed 1.06 million people in this sector were still furloughed in April 2021.

Just about every industry has relied on furlough. In manufacturing, almost one million employees were furloughed in 2020, when lockdown was in place. However, there are now estimated to be around 273,000 furloughed, as of April 2021.

In the construction industry, 723,600 people were furloughed during the lockdowns of 2020. Provisional estimates by government statisticians show this number has decreased to 196,500.

The arts and entertainment sector saw 455,000 people on furlough in 2020. This number has come down slightly to an estimated 298,000 employees, as of April 2021 – a small decrease because of the continued closure of theatres and entertainment venues.

The government reports the number of jobs furloughed on the scheme has “steadily declined” since May 2020. The companies with the largest percentage of staff on furlough are the small to medium enterprises with 20 to 49 employees.

Figures show 62% of companies of this size had put at least some employees on furlough during 2020. This figure had not reduced much by the beginning of April 2021, with 58% still having staff furloughed.

Even big companies needed furlough to stay afloat. There was a 58% take-up rate of furlough among businesses with more than 250 employees, costing the nation a total of £4 billion. Statistics showed there were still 3.4 million jobs furloughed across all sectors, representing around one in eight employees, in April 2021.

 

How has furlough impacted the economy?

The government believes the economy is stronger than predicted, with the Office for National Statistics showing “early signs” of recovery in the employment market. There has been a rise in the number of job vacancies, which are at the highest level since the beginning of the pandemic.

There were some 1.6 million people unemployed in the UK in the three months up to April 2021. In December 2020, the figure was more than 1.76 million, the highest number since 2015. This was attributed to the pandemic and the lockdown, when large parts of the economy simply shut down.

An estimated 1.29 million people were unemployed in December 2019, before the pandemic began, showing how rapidly the lockdown affected businesses of all kinds.

There are fears the number of unemployed could start to creep up again in October, once furlough ends. Most economists estimate the unemployment rate will rise again in autumn. However, it is hoped the lifting of restrictions will stop it from rising to 2020 levels, even when furlough ends.

The Bank of England has estimated the unemployment rate could reach around 5.5% in autumn but speculates this number will start to fall again in 2022 if the economy recovers sufficiently post-lockdown.

Employees aged under 25 have been hit hardest, with the loss of 289,000 jobs across all sectors during the pandemic. This is because a lot of young people work in restaurants, pubs, nightclubs and the entertainment industry, where many venues have remained closed after other sectors opened.

The number of people being made redundant has been falling gradually in 2021, although it still remains higher than before the pandemic began.

With the re-opening of the hospitality industry, it is hoped some of the unemployed young people will be able to find work again. There are currently vacancies in all areas and departments of the hospitality industry in anticipation of it becoming fully operational.

 

Might furlough be extended beyond September?

Although the government said, initially, the furlough scheme wouldn’t be extended beyond 30th September, Cabinet Office minister Michael Gove hinted last month this may not be set in stone. During an interview on BBC Radio, he replied the government was “open-minded” when asked if there was any chance of the scheme being extended.

He said “extra funding for everyone” would continue and it was important to decide how that money should be spent. However, it has been widely reported that the £20 a week extra Universal Credit will definitely end when the current six-month extension ends at the start of October.

It appears there is to be no reprieve for the six million people currently in receipt of Universal Credit. The number of claimants has increased by 98% since March 2020, but Prime Minister Boris Johnson has remained unmoved by the pleas of Labour MPS and former ministers, who have demanded he leaves the £20 a month increase in place permanently.

When asked if reducing the income of the poorest members of society would lead to more hardship, he replied the “way forward” was to get them into “higher wage, higher-skilled jobs”, rather than giving them more welfare benefits.

Work and Pensions Secretary Therese Coffey has told the Commons that people on Universal Credit will start receiving letters advising of an “adjustment” in their payments, which will start to kick in from late September and early October.

If the end of furlough and the UC boost coincide at the end of September, thousands of people might find themselves struggling to make ends meet in the worst-case scenario. Some might find themselves relying on short-term loans to help them get through these challenging times. Securing finance against your vehicle is one option for raising cash quickly in the event of a financial emergency.

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