Tuesday 12 May 2020 4:03 pm

Furlough: When will the job retention scheme end?

Save our SMEs

Chancellor Rishi Sunak’s job retention scheme has won wide plaudits for helping workers stay employed via furlough during the coronavirus crisis.

Furlough has been one of the fundamental pillars in the chancellor’s economic response to the crisis and it has effectively amounted to temporary state socialism.

Read more: One million employees already registered for job retention scheme

The historic policy has seen the government – a Tory one no less – essentially nationalise large parts of the economy for a limited time and pay much of people’s wages.

But questions are now arising about how long the job retention scheme will last and how much the final bill will cost.

What is the job retention scheme?

The job retention scheme sees the government pay 80 per cent of wages, up to £2,500 a month, to workers on furlough during the coronavirus crisis. That has encouraged employers to retain staff by putting them on furlough instead of making them redundant.

Sunak introduced the scheme just days before Boris Johnson put the UK into effective lockdown last month.

The scheme required HMRC to create a new online portal for employers to apply for the job retention scheme.

Listen to our daily City View podcast as we chart the economic fallout and business impact of the coronavirus pandemic.

The government received wide praise for the rollout of furlough, after many expected it to be a disaster.

Julian Cox, head of employment law at City law firm BLM, said: “When the portal opened people expected it to fall on its face.

“Generally speaking, people have been pleasantly surprised and it’s been relatively smooth.”

How many employees have been registered for furlough?

As of 12 May, 7.3m jobs from more than 1m businesses are being paid through the scheme.

So far, the Treasury has paid out more than £10bn.

A survey from the Office of National Statistics estimates that 66 per cent of companies are applying to the scheme.

The scheme launched on 20 April and received 67,000 applications in the hour after the portal opened.

The Treasury has promised that every successful business to apply will receive payment within six days after they lodge their claim.

Read more: Coronavirus wage bailout: Government to cover 80 per cent of workers’ salaries up to £2,500

How much is it costing the government?

The Treasury has not released its internal estimates of how much it believes the job retention scheme will cost.

Read more: Applications worth £1.5bn now made to coronavirus job retention scheme

However, the Office for Budget Responsibility (OBR) estimates it will cost £49bn if it runs until June.

Left-leaning think tank the Resolution Foundation has given similar projections.

Resolution Foundation economist Daniel Tomlinson said: “We estimate that with take-up of between 7m and 10m over three months, the scheme could cost between £30bn and £40bn in gross terms.

“The high take-up of the JRS means that it is likely to be the component of the government’s coronavirus response measures with the largest fiscal cost.”

When will the job retention scheme end? 

Sunak announced in the House of Commons that the scheme would be extended until October and promised furlough workers that they would not see a drop in wages until the scheme ends.

The chancellor announced that the scheme would remain the same until the end of July and it will be modified for “greater flexibility” from August to October.

He said this would include having employers pay a portion of wages through the scheme and for part-time workers to be included in the scheme.

The details will be released later this month, but it is understood that the government will pay at least 50 per cent of wages beyond July and that even businesses that have not opened yet will be forced to contribute toward it.

Read more: Extend job retention scheme or risk ‘second wave’ of unemployment, says think tank

“Employers will be able to bring furloughed employees back part time. We will ask employers to share the costs of paying people’s salaries,” Sunak said.

“Workers will, through the combined efforts of government and employers, continue to receive the same level of overall support as they do now at 80 per cent of their current salary up to £2,500 a month.”

Former Bank of England governor Lord Mervyn King said Sunak should extend the scheme indefinitely.

King, who was governor during the 2008 financial crisis, told BBC Radio 4 that it should only end when the UK’s GDP returns to pre-lockdown levels.

“Keep it at 80 per cent. I don’t think it makes sense to regard this as the major cost of the Covid-19 crisis in economic terms,” King said.

Read more: Former BoE governor says extend furlough scheme indefinitely

“These payments under economic schemes are transferred from taxpayers in general to businesses. It will lead to an increase in national debt. [But] we can finance that over a long period, particularly giving to the real level of long-term interest rates.

“The real cost of this shutdown is not measured on the impact of public finances, but by the lost incomes and output in the economy.”

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