Rishi Sunak has confirmed the Treasury is to gradually withdraw its job retention scheme over the next five months, with businesses meeting 20% of the wage bill for their furloughed staff by October.
Taxpayers have been meeting the wage bill for 8.4 million workers, at a cost of about £14bn a month, since March. The scheme was aimed at preventing mass layoffs, as lockdown restrictions caused large parts of the economy to shut down.
Employees have been receiving 80% of their usual wage, up to a maximum of £2,500 a month. One million firms are using the scheme, according to data released this week.
Sunak said that from August, firms will have to pay employer national insurance and pension contributions for staff they continue to keep on furlough. In addition, they will have to pay 10% of their wages in September. This will rise to 20% in October.
Sunak said: “We stood behind Britain’s businesses and workers as we came into this crisis and we stand behind them as we come through the other side.
“Now, as we begin to reopen our country and kickstart our economy, these schemes will adjust to ensure those who are able to work can do so, while remaining among the most generous in the world.”
The Treasury has also brought forward the date on which furloughed staff can be brought back part-time, to 1 July. Business groups had pressed for the change, as rule changes mean some sectors can reopen – including non-essential retail on 15 June, for example.
Firms will only be able to apply for the job retention scheme or furlough additional employees until 30 June.
Presenting Friday’s daily coronavirus briefing in Downing Street, Sunak also announced self-employed workers whose income has been hit by the crisis would be able to claim a second grant.
Those who qualified for the Treasury’s self-employment income support scheme would be able to apply for another payment, calculated as 70% of their monthly profits, up to a ceiling of £6,570. The first round of payments were based on 80% of monthly profits.
Some sectors are tentatively reopening as lockdown restrictions are eased. With social distancing guidelines likely to remain in force for the foreseeable future, however, many will have seen their previous business model shattered. As the furlough scheme tapers away, they will face tough decisions about whether to keep staff on the payroll.
Sunak warned on Friday that “not everything will look the same as before”. He said: “It won’t be the case that we can simply put the key in the lock, open the door and step into the world as it was in January.”
“I do want to acknowledge that we haven’t been able to support everyone in the exact way they would want. I understand some people have felt frustrated, but you were not and have not been forgotten.”
Business groups and trades unions welcomed the changes to the scheme. Mike Cherry, the chairman of the Federation of Small Businesses, said: “By providing employers with the adaptability they’ll require as businesses adjust to a new normal, and bringing forward the flexible furlough launch date, the government is giving hope to small firms right across the UK.”
Len McCluskey, the general secretary of Unite union, said: “The chancellor has listened to trade unions like Unite who have been calling for flexible and incremental changes to the jobs retention scheme to allow businesses to get back on their feet, protecting jobs in the process.”
But he called for the government to support hard-hit sectors, to avoid mass unemployment.
“Wage assistance is a great help, but much of the economy, especially aviation, manufacturing and hospitality, urgently need[s] sector-level support to adjust to the enormous challenges posed by Covid-19. We have to enable businesses to develop new products and build back demand while holding on to the skilled workforce that they have invested in over the years,” he said.
Shadow Chancellor Anneliese Dodds said: “The chancellor must publish the evidence behind these decisions to provide reassurance that his proposals won’t cause an additional spike in unemployment, and an even more difficult economic recovery from this crisis.”
Sunak has previously warned the UK faces a “severe recession like no other”. Claims for universal credit have already shot up by 1.8m since the crisis began, although these will include people still in employment whose income has dropped, as well as the newly unemployed. Speaking on Friday, he said: “There will be hardship for many and that weighs heavily on my shoulders.”
The chancellor is understood to be considering holding a mini-budget in the summer, as the Treasury weighs up how to provide more support for those losing their jobs in the coming months. It also wants to shore up the public finances in the face of the unprecedented cost of the coronavirus rescue package.
Sunak had initially been reluctant to extend fresh support to the self-employed, many of whom the Treasury believes have been able to continue working.
But he faced a vocal campaign from MPs, with more than 100 signing a letter urging him to do more. Coordinated by Labour MP Siobhan McDonagh, the letter said: “Removing what is already in place would pull the safety net from under the feet of millions of self-employed workers. How can it be right for the furloughed scheme to continue but this scheme to not?”
The Treasury stressed that those qualifying for the scheme, which has already paid out £6.8bn to 2.3 million people, would be able to claim a second and final payment. The prime minister had previously suggested the government would offer “parity of support” to employees and the self-employed.
Official figures published last month gave the first snapshot of the catastrophic impact of the pandemic on the economy. The Office for National Statistics said GDP declined by 2% in the first quarter of the year – despite the fact lockdown restrictions only came into force in March.
June and July
The government will pay 80% of wages up to a cap of £2,500 plus employer national insurance (ER NICs) and pension contributions. Employers are not required to pay anything.
The scheme will close to new entrants on 30 June. In July, businesses can start bringing furloughed staff back part-time and employers will pay their wages for hours worked.
The taper starts. The government still pays 80% of wages up to £2,500, but employers must now pay ER NICs and pension contributions. For an average employer this represents 5% of employment costs had an employee not been furloughed.
Government pays 70% of wages up to a cap of £2,190. Firms must contribute 10% of wages plus ER NICs and pension contributions – about 14% of gross employment costs pre-furlough.
Government pays 60% of wages up to a cap of £1,875. Employers contribute 20% plus ER NICs and pension – about 23% of gross employment costs pre-furlough.
The extension of the scheme will include grants being cut to 70% of average monthly trading profits from the current level of 80%. Applications allowed from August.
The funds will be paid out in a single instalment covering three months’ worth of profits, capped at £6,570 in total.