Coronavirus: is the end of the furlough scheme the end of employment?

An exploration into the purpose of the furlough scheme and whether it has served its purpose or has been taken advantage of.

What is the Coronavirus Job Retention Scheme (JRS)?

The Coronavirus Job Retention Scheme is a temporary initiative, created by the Government to support employers whose operations have been restricted by the impacts of COVID-19. Its purpose is to provide financial support to businesses to enable them to continue paying their employees’ wages whilst putting them on furlough leave (Gov.UK, 2020).

In order to be eligible for the scheme, an employee had to be employed and on their employer’s PAYE payroll on or before 19 March 2020; extended from the original date of 28 February 2020 to maximise the protection available (Gov.UK, 2020). Under the scheme, the employer would receive a grant initially equivalent to 80% of the furloughed employee’s salary, and up to a maximum of £2,500 each month (Gov.UK, 2020).

The JRS is estimated to have cost the taxpayer in excess of £31 billion (Financial Times, 2020), with a further extension estimated to cost a further £10 billion (Financial Times, 2020), which many would argue is a small price to pay for public health protection and economic recovery.

What was the purpose of the JRS?

The scheme, which was announced by the Government on 20 March 2020, was designed to support employers to retain their workforce. The overall aim was to avoid widespread redundancies by providing a shield to the cliff face downturn in business for a period up until 31 October 2020 (House of Commons Library, 2020).

The scheme has thus far supported over 9 million jobs (Financial Times, 2020). Yet there are concerns that prematurely ending the scheme could see the UK’s unemployment levels jump by over 6% (Financial Times, 2020), despite the Bank of England predicting that it will peak at 7.5% (Financial Times, 2020).

UK Chancellor Rishi Sunak is facing mounting pressure to minimise job losses by continuing the scheme; he acknowledges the impact of ending the scheme but is keen to end the current state of limbo and encourage employees to return to work (Financial Times, 2020). Sunak defended his plans to end the JRS, despite the possibility of the scheme further protecting jobs as he does not want the country to be hiding behind a façade and for employees to be “trapped in a job that can only exist because of a government subsidy” (Financial Times, 2020).

Although the JRS has cushioned the economic downturn, unfortunately this has not been enough to prevent the UK from officially being declared in recession (BBC, 2020), after the gross domestic product falling 2.2% in Quarter 1 (January to March) 2020, and falling a further 20.4% in Quarter 2 (April to June) 2020 (Office for National Statistics, 2020). Despite good intentions behind such scheme, within a month of its launch, in excess of 700 reports had been recorded by the HMRC raising concerns that the scheme was being misused (The Guardian, 2020). The scheme has clearly had a profound impact on the economy and provided the integral support that was needed at a time of desperation, but it is questionable whether the scheme has gone far enough and whether the right people have been assisted given the gross abuse of this lifeline.

What is the expected impact of the JRS ending?

It is understandable that this scheme cannot continue indefinitely and the Government wishes to return to some “degree of normality” (Financial Times, 2020). However, the Government needs to remain mindful of those individuals who have been sheltered by the JRS as the compulsorily imposed lockdown. This has meant that they have been unable to continue working, either because their place of work is closed and they are unable to return to work or work remotely, or it is not safe for them to return due to a threat to their health. In order to further combat the spread of the virus, local authorities in England have been granted special powers to initiate local lockdowns in their areas (Gov.UK, 2020) causing further uncertainty to an individual’s employment and correlating income.

Although the JRS is being scrapped, and studies revealing that a third of businesses are predicting redundancies between July and September (Financial Times, 2020), employers are still being incentivised to retain their workforce by offering a £1,000 bonus for every furloughed worker who remains employed up until 31 January 2021, subject to a minimum earnings threshold (Gov.UK, 2020). However, this fails to recognise that some sectors, such as hospitality, leisure and retail, have been harder hit and face continuing battles to resume pre-COVID operational capacity (Financial Times, 2020) revealing that a “one size fits all” recovery package is not feasible.

However, it is not all doom and gloom. We welcome the community-spirit and corporate social responsibility displayed by retailers such as Ikea, who initiated discussions with the countries who propped them up during this crisis in a bid to return the financial support it received (Financial Times, 2020), and Asos who claimed it would return the financial support it received back to the Government after experiencing a more promising bounce back than expected (BBC, 2020).

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