The government’s pandemic job retention scheme, which was due to wind down at the end of June, has been extended until October.
Employees will continue to receive 80% of their monthly wages up to £2,500, but companies will be asked to "start sharing" the cost of the scheme from August onwards.
It had been suggested, before today’s announcement, that the government’s contribution could be capped at 60% when the initial phase of the scheme ends as scheduled at the end of next month.
Chancellor Rishi Sunak is widely reported as having described the 80% government handout as unsustainable.
Today’s announcement will be good news for the nation’s 7.5 million workers who are currently furloughed. What will be interesting is how the companies who have jumped at the chance to furlough staff react when, as Mr Sunak revealed today, they are asked to "start sharing" the costs. HMRC chief executive Jim Harra told the BBC that employers had made 67,000 job claims in the first 30 minutes of the scheme going live, back in March.
As the take-up figures show, the scheme has proved to be a life-line for many British workers unable to work from home and therefore unable to earn a living during the lockdown. Some 1.2 million workers joined the scheme just in the last week.
Two-thirds of British businesses have already used the scheme and one in three companies have put at least 75% of their workforce on furlough, according to a survey published by the British Chamber of Commerce.
If this pattern was to be repeated across the economy, then at least a third of private sector employees, somewhere between seven million and ten million people, would be furloughed, according to analysis from think-tank the Resolution Foundation.
The scheme allows employers to claim a grant for 80% of furloughed employees’ usual monthly wage costs, up to £2,500 a month, plus the associated employer national insurance contributions and minimum automatic enrolment employer pension contributions on that wage.
Never intended to be a long-term fix, the Office for Budget Responsibility initially estimated the cost of furloughing workers would reach £42 billion, but that was before the government extended the scheme by a month. The final bill could now easily be double that.
Now, much like the lockdown itself, moving on to the ‘new normal’ as it has been dubbed, is likely to prove trickier to ease into.
While the retail sector at large has leaned heavily on the scheme, with shops shuttered and no real sign yet of when non-essential shops will be able to reopen, the supermarkets have been the exception.
Morrisons today revealed that it has not furloughed a single member of staff and it will not be alone in the supermarket sector.
Other sectors have fared less well. With global travel bans and even domestic travel curtailed - with even the daily commute now a relic of times gone by - airlines, train and bus companies and those that depend on them, face tough times. Take the online ticket seller trainline.com and also to an extent WH Smith, which has seen its dismal high street shop performance of the past few years bolstered by the success of its strategically-placed airport travel outlets, which have cashed in on the boom in air travel. With air travel all but suspended right now, and a return to normality forecast for some time in 2023, the medium-term outlook looks likely to be troublesome for many companies.
With the Prime Minister encouraging those who cannot work from home to go back to their adequately socially-distanced jobs, many will be eager to ditch their stay-at-home furloughed existence and restart their working lives. But for some, the inevitable economic consequence of the pandemic will result in either a hunt for a new job or a spot two metres behind the person in front of them in the unemployment queue.
For investors too, spotting the companies which will survive is tricky too. Many sectors have been affected in one way or another and while there will be survivors and indeed thrivers, spotting those can be difficult. As always, a diversified approach is the best way to steer a path through these exceptionally troubled times.
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