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Sun, 29 November 2020

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Analysis: The questions still unanswered as Rishi Sunak extends the multi-billion pound coronavirus furlough scheme

Analysis: The questions still unanswered as Rishi Sunak extends the multi-billion pound coronavirus furlough scheme

The Chancellor has revealed 7.5m workers are already making use of the scheme.

6 min read

As the Chancellor announces a fresh extension to the Coronavirus Job Retention Scheme, The House’s policy editor Georgina Bailey digs into the detail - and gauges the mood among MPs

Pushing back against reports over the weekend that the public needed to be “weaned off” Government salary support – more commonly known as furloughing – Rishi Sunak’s Commons annoucnement on Tuesday was a more generous extension of the Coronavirus Job Retention Scheme than many expected.

Since the scheme was first announced on 23 March, 7.5 million jobs have been placed on furlough by nearly 1 million firms which otherwise may have been lost.

The scheme will now be extended until the end of July under the current terms: no work can be done by furloughed employees, with the Government covering 80% of their monthly wage, up to £2,500 (employers can still top up to 100%). 

This is an extension of the previous scheme’s expiry date of the end of June, with the chancellor stating he “won’t give up on the people who rely on it”. 

Sunak also announced that there will be some type of furloughing support until the end of October, although on different (and as yet unclear) terms – this will mean the Government has supported the wages of those who may have otherwise been made redundant for a total of eight months. 

However, what the announcement had in generosity, it lacked in detail. 

Sunak was under pressure to get an announcement out this week to enable firms to start making plans – if the scheme had not been extended, the consultation period for anyone looking to enact redundancies of more than 100 employees from July would have needed to start next week, with a CIPD survey of HR professionals last week finding that over half of those on furlough would have been made redundant without the help.

While the Treasury has given firms some more breathing space with their widely welcomed announcement, officials are still working out what exactly that next stage of furloughing support will look like. MPs were told to expect further announcements coming in the next few weeks – but questions for workers and businesses still abound. 

WHAT HAPPENS NEXT?

In the next stage of the scheme (August to October) employees should still receive at least 80% of their wage up to £2,500 per month if they’re furloughed. However, the Government contribution will be lower, with employers expected to top up to the 80% instead. 

While Labour have welcomed the extension, Wes Streeting MP, Shadow Treasury minister, told The House that “the devil will be in the detail”.

“There is a risk that employer contributions could lead to avoidable redundancies,” Streeting says, with some concerned that any mandated payroll costs for businesses facing reduced or no income will be a disincentive to keep workers on.

"We’d like employers to be given the freedom to furlough workers part time sooner than August" - Shadow minister Wes Streeting

It is not yet clear whether the scale of the Government contribution for different businesses and sectors will vary – and if the level of government contribution will change between August to October – with some sectors expected to bounce back faster than others. However, it is expected that the Government will still cover the bulk of furloughing costs for most businesses.

From August, furloughed workers can also be asked to work part-time as businesses gradually amp up operations again – but what their pay structure will look like is also uncertain, including whether full pay will be mandatory for the days when employees are working.

While welcoming the move to a more flexible furlough scheme, Labour would like to see things moving faster. “We’d like employers to be given the freedom to furlough workers part time sooner than August,” Streeting says.

The Chancellor accepted that there will still be some redundancies when the scheme is over, telling the Commons: “Everyone who loses their job through this period is someone the government is determined to stand behind.” And he promised that new training and back to work schemes would be coming down the line for those affected.

In addition, the Chancellor also confirmed that there would be no changes for those who currently fall through the gaps of the current scheme, such as the recently unemployed, and the self-employed who pay themselves through dividend, until July. 

WHO STILL NEEDS MORE SUPPORT?

The size of any employer contribution as the scheme continues past August is of particular concern to the hospitality and leisure sectors, who currently have the largest proportion of employees on furlough at 80% and 68% respectively. 

Boris Johnson this weekend said that pubs and restaurants should not expect to open until at least the beginning of July – and even then, it will be at much a reduced capacity in order to enforce social distancing. 

Steve Double, the Conservative MP for Newquay and St Austell in Cornwall, where over 30% of jobs are in tourism and hospitality, told The House the extension was “very welcome”. 

“It is likely that the Government will need to provide further support through the winter" - Conservative MP Steve Double

However, he also warned that the seasonal nature of hospitality, where the bulk of income is made in July and August, means businesses’ “ability to earn money will be disproportionately impacted” by the ongoing closure. 

Sunak himself will be very aware of the risks to hospitality jobs. His tourism-rich constituency of Richmond in North Yorkshire has been identified as the area with the highest proportion of jobs at risk in the UK by the RSA, with up to 35% of jobs at risk. 

Double believes the Government will need to give more support beyond October to keep those jobs. “It is likely that the Government will need to provide further support through the winter to ensure businesses are able to survive into the spring and the new [tourism] season begins,” he told The House. 

The plight of aviation employees was also much discussed in the Chamber, after Willie Walsh, the CEO of IAG, British Airways’ parent company, appeared in front of the Commons Transport Committee this week. British Airways have currently placed 22,500 jobs on furlough, and plan to make 12,000 redundancies – with Walsh claiming that the furlough scheme only covers ten days of BA’s cash flow. 

However, there are fears that some companies may be using the coronavirus crisis as cover for restructuring plans that would have already necessitated job losses. And Sunak’s extension of the scheme will do little to quell fears among some hawkish MPs that businesses are simply taking government cash - with no intent of preserving jobs in the long term.

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