The decision by the Government to end furlough at the end of October 2020 has been backed by the Governor of the Bank of England.
Decision To End Furlough
The coronavirus job retention scheme, under which an employee is ‘furloughed‘, is scheduled to end on the 31st October 2020, but employers are required to start sharing the costs from the 1st August 2020, to be phased in, in 3 stages, as follows:-
- From the 1st August 2020, the taxpayers contribution will remain at 80% of employees wages, but employers will be required to pay the national insurance and employers pension contributions of furloughed workers. On average, national insurance and employers pension contributions equate to approximately 5% of aggregate employment costs
- From the 1st September 2020, the taxpayers contribution will fall to 70% of employees wages, with the employers contribution set at 10% plus payment of national insurance and employers pension contributions
- The taxpayers contribution will fall to 60% from the 1st October 2020, with the employers contribution rising to 20% plus payment of national insurance and employers pension contributions
The furlough scheme was closed to new entrants from the 30th June 2020, and employers were able to start bringing furloughed workers back part-time from the 1st July 2020. Should they do that, then the employer would need to pay their employee 100% of their wages for those hours that they do work, whilst the grant under the job retention scheme would cover the employee for the remainder of their contracted hours at the aforementioned furlough rates.
In an interview with Sky News on the 7th August 2020, the Chancellor of the Exchequer, Rishi Sunak, justified the decision to end furlough at the end of October 2020 by stating: "[The Decision was] one of the most difficult decisions I've had to make in this job. If you look at it from start to finish, the government will have been stepping in to help pay people's wages for almost eight months - an extraordinarily long period of time. I think most reasonable people would look at that and say that's not something that's obviously sustainable in the long run. In common with many other countries around the world - their versions of this are all coming to the end towards the end of this year."
Bank Of England Governor Backs Decision To End Furlough
The decision to end furlough in October 2020 has been endorsed by the Governor of the Bank of England, Andrew Bailey, in an interview with the BBC. He said that it was important that workers "move forward" and should not be retained in what Allianz has referred to as zombie jobs simply for the sake of it, even where the result of ending furlough would be that those jobs were redundant. The Governor added: "It's been a very successful scheme, but [its] right....we....look forward now....I don't think we should be locking the economy down in a state that it pre-existed in."
The Governor also stated that the economic slump was unlikely to be as severe as the Bank of England feared back in May 2020, when it forecast in its Monetary Policy Report that GDP could contract by 14% overall in 2020. In the Bank of England's latest Monetary Policy Report, it forecasts that GDP will fall by 9.5% overall in 2020. The Governor attributed this to the the rapid easing of the lockdown and the swift pick up in consumer spending, particularly in relation to household goods and clothes which returned to their pre-lockdown levels. Moreover, food and utilities expenditure remain at above pre-COVID-19 levels. Mr Bailey stated: "We have had a strong recovery in the last few months. The pace puts the economy ahead of where we thought it would be in May."
However, in its latest report, the Bank of England conclude that the recovery will be slower than they originally anticipated. Whereas the Bank forecast growth of 15% in 2021, and 3% in 2022, they now predict growth of 9% in 2021 and 3.5% in 2022, with the economy returning to its pre-COVID-19 level by the end of 2021. It also forecasts an increase in unemployment from 3.9% to 7.5% by the end of the year, with inflation falling to almost zero. Â
Calls For Continuation Of The Coronavirus Job Retention Scheme
Nevertheless, some disagree with the decision to end furlough in October 2020, with the National Institute of Economic and Social Research (NIESR) warning that it could push unemployment up to 10%. Garry Young, the deputy director of NIESR, states: "The planned closure of the furlough seems to be a mistake, motivated by an understandable desire to limit spending.....Unemployment is going to rise to about 10% by the end of this year, before dropping back next year, and we think that an extension of the furlough scheme would have been a relatively inexpensive way to limit that rise in unemployment."
