The government will start tapering its furlough scheme from August by forcing those employers taking part to pay 20% of workers’ wages as well as covering their national insurance and pension contributions.
Under plans to be announced by Rishi Sunak over the next few days, the support given by the furlough scheme will be cut back due to government concerns about its spiralling cost and the likely impact on the UK’s growing public spending deficit.
The chancellor is understood to be preparing the final details of the revised scheme after coming under pressure from officials to make employers pay a larger contribution towards the cost of non-working staff as the lockdown begins to ease.
Employers have furloughed 8.4 million workers and claimed up to 80% of their wages, to a maximum £2,500 a month. Figures earlier this week revealed that the cost has reached £15bn while a separate scheme to support self-employed workers had cost almost £7bn.
Labour has called on the chancellor to bring forward more fundamental reforms by protecting subsidies for the industries hit hardest by coronavirus.
Last month Sunak said he would extend the existing scheme until the end of July, but would need to cut the level of subsidy in a second phase running to the end of October. The scheme was launched in March and was initially intended to last just three months, in anticipation of a V-shaped economic recovery that is no longer expected to materialise.
Employers groups have warned that a dramatic change to the scheme at the end of July will lead to tens of thousands of redundancies. The Institute of Directors said that a quarter of its members using the job retention scheme risked going bust if they were forced to make any contribution towards furloughed workers’ wages.
The draft plans are understood to expect employers to contribute 20% of salaries while the government pays 60% up to a cap of £2,500 a month, down from the 80% employers receive at present. Employers will also be expected to pay national insurance contributions, which they are currently exempt from, and employer pension contributions.
The chancellor is also expected to shut the furlough scheme to new entrants, a move that will help cap the bill to the Treasury, but also prevent employers from rotating staff who are currently not working with those who have spent recent weeks at work.
The Office for Budget Responsibility, the government’s independent economic forecaster, has forecast that the overall bill for the government’s jobs subsidy schemes could hit £80bn, pushing the overall cost of fighting the coronavirus outbreak to more than £300bn.
Treasury officials are known to be concerned at the spiralling cost of the Treasury’s rescue schemes and keen to limit the damage to the public finances. Last month a leaked letter written by officials proposed raising taxes or imposing a public sector wage freeze to bring down government borrowing.