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Could ending the furlough scheme spark a surge in unemployment

In a recent report, NIESR hailed the Government’s coronavirus job retention scheme but called on the Chancellor to extend it into next year to preserve jobs.

What happens when the Furlough scheme ends?

The Government’s furlough scheme has proven to be a lifeline for many employers and employees alike, providing more than 9 million workers unable to work because of the virus with financial support. However, with both changes, and the end of the scheme nearing, there is increased concern that there will be a spike in unemployment.

The Coronavirus Job Retention Scheme

The scheme was created to provide 80% of the salary of any worker unable to work because of the pandemic, up to the amount of £2,500 a month. Since the scheme, there have been some notable changes, from July furloughed employees have been able to return to work part-time, with the time not spent working for their employer covered by the scheme. However, from the 1st of August employers will have to pay both National Insurance and Pension Contributions for their staff. As the scheme slowly winds down the Chancellor announced from September employers will need to pay 10% of their employees’ salaries, rising to 20% in October, after which the scheme will come to an end.

 

Risk of increased unemployment at the end of the scheme

The Government plan to shut the coronavirus furlough scheme this autumn “seems to be a mistake” which will result in a surge in unemployment, according to a leading economic think-tank.

The National Institute of Economic and Social Research (NIESR) has warned that the rate of unemployment is set to surge to around 10% of the country’s workforce by the end of the year.

NIESR hailed the Government’s coronavirus job retention scheme but called on the Chancellor to extend the scheme into next year in a bid to preserve jobs.

Around 9.5 million roles have been supported by the furlough scheme, but it will be wound down from next month and removed entirely at the end of October.

The think-tank called on the Government to rethink this, arguing that extending the programme until the middle of next year would dramatically cut the number of redundancies and would probably pay for itself.

It said that if the Government continues with current plans, unemployment will recede as the recovery gathers speed in 2021 but will remain above its recent level of around 4%.

Garry Young, NIESR deputy director, said: “The planned closure of the furlough seems to be a mistake, motivated by an understandable desire to limit spending.

“The scheme was intended by the Chancellor to be a bridge through the crisis, and there is a risk that it is coming to an end prematurely and this increases the probability of economic scarring.

“The scheme has been an undeniable success in terms of keeping furloughed employees attached to their jobs.”

The think-tank also forecast that UK GDP is set to fall by 10% in 2020, before increasing by 6% in 2021.

Advice for employers

If your business is at risk or you are worried about having to reduce your workforce, it’s important that you speak to an expert. With over 12 years of experience, at MPA we have helped businesses create and execute strategic plans to secure their future. Combining our financial and technical expertise we are able to analyze accounts and identify opportunities for our clients to claim back money they didn’t realise they were eligible for. Government schemes such as R&D tax credits and Patent Box have been impacted very little during this pandemic, and the government is still rewarding UK businesses who are engaged in developing new or improving existing products or services.

To find out more or book your free consultation, contact us.

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