So, is furlough really coming to an end? It certainly seems so. In this blog post I’ll be looking at what the end of it means, for who and when it’ll happen. Also, what the likely impact will be, both on the individuals concerned and the wider economy.
Furlough for Now, But What Happens Next?
First introduced in March 2020, furlough was intended to stop people being made unemployed during lockdown. The Government paid 80% of the wages of people who couldn’t work, or whose employers couldn’t afford to pay them. This applied up to a monthly maximum of £2,500. Employees retained all their rights and were taxed normally. This is now changing:
- From 1 July, the Government has paid 70% of salaries and employers will pay 10%.
- In August and September, the Government will pay 60%; employers will pay 20%.
The £2,500 monthly limit will stay in place, so staff won’t notice the difference.
The Institute for Fiscal Studies has calculated the additional costs to employers. It’ll rise from £155 per employee per month in June, to £489 in August and September.
By making it more expensive for employers, then removing it, the government hopes to incentivise taking workers back full-time.
Who’s Going to be Affected?
According to the most recent data at the time of writing (to 31st May):
- Approximately 2.4 million people were furloughed (down from a peak of 5.1m in January).
- 30% of employers had some staff on furlough, down from 35% at the end of April.
- There are now 1.2m men vs. 1.1m women on the programme.
The Government says 11.6 million jobs have been supported since the scheme began.
Also, from March 2020 to September 2021, the cost of it will be some £66bn, according to the Office for Budget Responsibility.
Impact on the Economy
Most economists, including the Bank of England, expect unemployment to rise from October onwards. Of course, it’ll vary by sector and depend on the changing nature of the pandemic.
For example, the food and drink sector saw the biggest reduction in the number of jobs on furlough in May, as the economy re-opened. Conversely, air travel and international tourism jobs will continue to be under pressure, and some will probably be lost. As will many high street retail jobs.
So, while parts of the economy breathe a sigh of relief, other parts are squeezed. The net effect on GDP will most likely be downward. Some will be forced to retrain and/or move into different, maybe lower paid, sectors.
Personal Financial Implications
For those millions on furlough, their personal finances will have already been depleted through living long periods on reduced incomes. Depending on their circumstances, this could worsen dramatically if made unemployed.
Note, staff will still have the same accrued redundancy rights as if they were fully employed beforehand, so the impact may take some time to work its way through to the economy.
Universal Credit is designed as a safety net only, so will most likely mean a significant reduction in income, more so for homeowners, with savings.
Many will look to take ‘pension holidays’, where they lower or stop altogether payments into pension plans. Older employees, over 55 years old, may start to take funds out of their pension savings, too.
If you’re faced with such choices, I urge you to check out my earlier blogs on Flexible Retirement and Pensions and Furlough. Then talk to a financial adviser, like me. There are often long-term implications to such actions that you should be made aware of.