Later today, Prime Minister Boris Johnson is due to give a press conference. It’s expected that he will announce that the date on which all COVID-19 restrictions are lifted – currently 21st June – will be postponed for another four weeks. He’s going to do this because cases of the now-called ‘Delta’ variant of coronavirus are rising quickly. The extra month will allow millions more people to be vaccinated and, hopefully, slow the spread of the disease. However, for many employers and workers, their first questions will be: “Will there be a furlough extension?”
While nothing is yet official, various news outlets – including the Daily Mail and the Independent – report that the Chancellor has no plans to change the withdrawal timetable for the furlough scheme.
Assuming that the reports are correct, what does this mean for businesses?
When will the furlough scheme end?
The furlough scheme (officially the ‘Coronavirus Job Retention Scheme’) is currently set to run until the end of September 2021.
While that’s great news at first glance, it’s important to realise that changes to the level of the grant will be phased in from July.
At the moment, government will pay 80% of furloughed workers’ salaries for hours not worked. This is capped at £2,500 per month. However, employers do have to pay employer National Insurance and pension contributions.
From July, there will be significant changes to this. During this month, government will pay only 70% of wages (up to £2,187.50). In August and September, this drops still further to 60% (maximum of £1,875 per month). This means employers have to top up workers’ salaries to 80%.
In other words, employers have to find up to an extra £312.50 per worker in July, plus up to £625 in August and September.
If there’s no furlough extension, who will be most affected?
Currently, there are still restrictions on certain types of business and specific forms of activity. For example, only 30 people or fewer can attend weddings or funerals. Nightclubs still have to remain closed. Most large events are not yet allowed.
If these restrictions are in place for another month (i.e. until the latter part of July), the lack of a furlough extension is going to have the biggest effect on employers such as nightclub owners, large event organisers and wedding venues and suppliers. Many will not be allowed to bring employees back to work, but – to keep them furloughed – will have to fund 10% of wages in July.
Can we rule out another furlough extension?
No. Past experience has shown that the Chancellor is quite capable of changing his mind at the last moment. Indeed, the current furlough scheme was extended at the last minute when COVID-19 cases began to rise and we faced new lockdown restrictions.
That said, with most businesses now open – including pubs and similar venues – there is likely to be less political pressure on the Chancellor to extend furlough. The best advice for businesses is to plan as though the furlough scheme will taper off as planned.
I can’t afford to keep employees on furlough. What do I do?
If you face problems making the extra contributions to furloughed employees’ salaries, you need to act fast. If you are a THP client and you’d like to talk through your options, please contact your account manager. We’d be very happy to help you plan your next steps.
About Jon Pryse-Jones
Since joining THP in 1978, Jon Pryse-Jones has been hands on with every area of the business. Now specialising in strategy, business planning, and marketing, Jon remains at the forefront of the growth and development at THP.
An ideas man, Jon enjoys getting the most out of all situations, “I act as a catalyst for creative people and encourage them to think outside the box,” he says, “and I’m not afraid of being confrontational. It often leads to a better result for THP and its clients.”
Jon’s appreciation for THP extends to his fellow team members and the board. “They really know how to run a successful business,” he says. He’s keen on IT and systems development as critical to success, and he continues to guide THP to be at the cutting edge and effective.