End of furlough- what’s happening?
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The Job Retention Scheme, implemented to support employers with staff costs through the Covid-19 pandemic, is due to close at the end of September. This blog outlines what changes are coming into force and what this could mean for businesses and the local labour market.
What is the Job Retention Scheme and when will it end?
The Job Retention Scheme, also known as furlough, was created by Chancellor Rishi Sunak in March 2020 to prevent employers from having to make redundancies during the Covid-19 pandemic. It enabled employees to remain employed or engaged by a company despite not undertaking any work for them, or only working on a part-time basis. Although it was only expected to last for a few months, it has repeatedly been extended as the second and third waves of the virus arose. For many it has acted as a lifeline by both preserving employee incomes and enabling businesses to retain staff. At the scheme’s peak in July 2020, more than 190,000 jobs were furloughed in the North East.
Originally, the Government paid 80% of the wages of people placed on the Job Retention Scheme, up to £2500 monthly. However, as the pandemic eases and businesses reopen, the Government has begun the process of winding down the scheme, with the aim to end it fully in September. In July 2021, employers were required to contribute 10% towards the wages of furloughed workers for hours their staff did not work. The Government continued to contribute 70%, keeping the employee’s pay at 80% of their normal wages.
Since the beginning of August 2021, employers have been required to pay 20% of a furloughed staff members’ wages, with the Government contributing 60%. This will continue to be the case until the 30th September.
After that date employers will no longer be able to place employees on furlough leave and will either need to bring employees back into work or begin redundancy processes.
More information can be found here.
What impact will the end of the Job Retention Scheme have on unemployment rates?
The impact that the end of the Scheme will have on unemployment is unclear. The most recent statistics show that 64,000 jobs are currently on furlough in the North East, with the region’s furlough take up rate at 6%, lower than the national average take up rate of 7%. The region’s slightly lower rates of furlough could mean the North East fares better than other areas, like London or the West Midlands which have a higher uptake of the Scheme.
However, the North East suffers from generally high rates of unemployment which could leave it more vulnerable to any national increase. Research conducted by the National Institute of Economic and Social Research has predicted that the close of the Scheme could raise the national unemployment rate from 4.8% to 5.4%.
It is likely that some sectors will be impacted by the end of the scheme more than others. The manufacturing sector has the largest number of employments on furlough in the North East. Manufacturers are also facing other pressures, including climbing inflation, continued challenges in the logistics sector and a shortage of materials which could dampen the sector’s post-lockdown recovery and ability to bring back employees.