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Extension to Furlough Scheme could cost the Government £70 billion

In an unexpected move, the Chancellor has extended the current Furlough scheme until the end of October but he now has a huge challenge to get this right, say leading tax and advisory firm Blick Rothenberg.

Heather Self, a partner at the firm, said: “He needs to achieve a “Goldilocks” effect – not too hot, and not too cold.  If he provides too much it will be very expensive and may discourage firms from reopening. If he provides too little thousands of people could lose their jobs.

“It is going to be a turbulent time for the labour market in the Autumn. Some sectors, such as the hospitality and tourism sector, are likely to see significant redundancies, while others such as construction and financial services will be relieved to see a gradual winding-down of support.”

From the announcement today, we now know that:

  • Support will be continued to the end of July in full, with employers required to contribute after that date.
  • Part-time working will be permitted, but only for some employees
  • The same level of overall support – 80% of wages up to a maximum of £2500 a month – will be maintained

Heather said: “As the furlough scheme is reduced the Government needs to incentivise business and come up with creative ideas about how business can keep going and retain staff.

“The Chancellor could not go on paying out billions of pounds indefinitely, and everyone understands that, but there needs to be much more joined-up thinking between Government and business.”

So far, some 7.5m employees have been furloughed, at a cost approaching £10bn.  The expected costs to the end of July are likely to be around £50bn, with the extension at a reduced level to the end of October perhaps costing a further £20bn.  These are very significant sums, amounting to around 10% of total Government receipts.

As Britain seeks to get back to work, the pressures on different sectors will be very uneven.  While some sectors, such as construction and financial services, are returning to work, others such as leisure and hospitality will be much slower to recover.  And the position in the tourism and heritage sectors is likely to become critical if they lose the whole of the summer season.

Heather added: “Enabling part-time work is welcome, as it will permit a gradual return to work.  But the Chancellor said this would only be available to businesses “currently using” the Scheme. It is therefore not clear what the cut-off date will be for businesses still considering whether they need to furlough employees.

“The Chancellor needs to pay attention to the needs of different sectors, difficult though this may be.  Leisure and hospitality businesses are unlikely to be able to cope with reopening fully by the end of July, and may need to contemplate redundancies.

“Additional support beyond the furlough scheme will be needed for a long time – whether loans such as the Business Interruption Loan scheme, or grants, or incentives such as an increase in the Employment Allowance to encourage employers to maintain their staff levels, or even take on new employees.”

Contact us

If you would like to discuss any of the above or have other queries about how you can make the right decisions for the future of your business and your income, please contact your usual Blick Rothenberg contact or Heather Self.

You can also visit our Coronavirus – Practical Guidance for businesses today Hub for our latest updates and insights.