The wind-down of furlough from today will mean “big income losses” for employees that organisations are not able to keep on payroll, according to the Institute for Fiscal Studies.
The 1 July change means that staff will only receive 70% of their wages from government, as employers must pay the other 10% of their furlough pay.
The IFS estimates the cost for employers to keep a member of staff on the scheme would rise from £155 per month currently, to £322 during July.
From 1 August, when the employers’ contribution rises to 20% and the government’s contribution reduces further, the cost will be £489 per month. The scheme will be withdrawn completely after 30 September.
Official figures suggest that around 1.5 million workers are still on furlough, and the IFS warns that the changes could prompt an increase in redundancies.
“With the cost of keeping employees on furlough rising, we therefore expect to see rising redundancies over the summer even before the final end of the scheme,” a statement from the IFS claimed.
“The wind down of the furlough scheme represents a step towards ‘normality’ in the labour market, but it also will mean big income losses for many of those who end up unemployed unless they are swiftly able to find alternative employment.”
Tony Wilson, director of the Institute for Employment Studies, also predicted the number of people leaving jobs could rise as furlough numbers fall, although conceded: “Whether that leads to a significant rise in employment remains to be seen.”
Earlier this week, think tank Resolution Foundation urged caution as the government winds down the Coronavirus Job Retention Scheme (CJRS), suggesting that claims the labour market was “overheating” because of staff shortages in some areas were overstated.
Many businesses have complained that the winding back of government support is going ahead as planned despite “freedom day”, when lockdown restrictions are due to be fully eased, being delayed until 19 July.
Unless the government acts now, it risks a serious economic flashpoint… a moment at which financial support starts to wind down, further trade changes take effect and repayments on emergency loans start to fall due” – Mike Cherry, FSB
Mike Cherry, chair of the Federation of Small Businesses, warned that “unless the government acts now, it risks a serious economic flashpoint… a moment at which financial support starts to wind down, further trade changes take effect and repayments on emergency loans start to fall due.”
The IFS added that the main alternative for support for those who lose their job is universal credit. However, the £20 uplift the government provided during the pandemic is due to be withdrawn at the end of September when the CJRS closes.
The IFS estimates that someone on furlough who previously earned £20,000 per year, has no children and owns their own home, will be entitled to universal credit (UC) at a level less than a quarter of their pre-tax furlough payment. How income drops will depend largely on workers’ personal circumstances, it added.
“Broadly, there are two types of furloughed employees who are going to see big drops in the amount of support that they get from the government if they become unemployed.
“The first are those who, whatever their previous earnings, have a relatively high earning spouse or significant level of savings, meaning they will qualify for little to no universal credit. The second type are middle or higher earning individuals.
“Under CJRS they got more support (in cash terms) than furloughed lower earners. But under UC, their (previous) higher levels of earnings do not make them eligible for any extra support.”