UK government sets out furlough scheme cost-sharing detail

UK Chancellor of the Exchequer Rishi Sunak announced Friday changes to the Coronavirus Job Retention Scheme that would mean employers sharing the costs starting in August of furloughing employees unable to work as a result of the coronavirus pandemic. The scheme was originally announced on 20 March and has been used by 1 million employers to protect around 8.4 million jobs.

From 1 July, a month earlier than previously announced, companies will be given the flexibility to bring back furloughed workers on a part-time basis. Employers will be responsible for paying employee wages while they are working. The government will provide further detail on the scheme’s flexibility on 12 June.

Sunak said in a series of tweets: “I’ve decided to provide the maximum possible flexibility, with no central definition of part-time hours. … For instance, your employer could bring you back two days a week. They pay you for the two days and the furlough scheme covers the other three.”

There will be no financial changes to the Coronavirus Job Retention Scheme in June and July, with the government continuing to pay 80% of employee salaries up to a £2,500 monthly cap, as well as employer National Insurance and pension contributions.

However, in August a tapering of government contributions will begin:

• August: The government will continue to pay 80% of employee salaries up to the £2,500 monthly cap. However, employers will pay employer National Insurance and pension contributions — an average of 5% of gross employment costs had the employee not been furloughed.
• September: The government will pay 70% of salaries up to a cap of £2,187.50. Employers will pay employer National Insurance and pension contributions and 10% of salaries — to provide 80% total up to a cap of £2,500. For employers, on average, this represents 14% of the gross employment costs they would have incurred had the employee not been furloughed.
• October: The government will pay 60% of salaries up to a cap of £1,875. Employers will pay employer National Insurance and pension contributions and 20% of wages — to make up 80% total up to a cap of £2,500. This represents 23% of the gross employment costs the employer would have incurred had the employee not been furloughed.

The government published further information and updated its guidance on the scheme, which will finish at the end of October.

Jing Teow, senior economist at PwC, said: “The government's proposal to share the cost of the Coronavirus Job Retention Scheme with employers is an important step towards taking the pressure off public sector finances.”

The cost-sharing arrangement, she said, “will highlight the gap between those businesses that have the cash reserves to help tide employees over for the next few months and those that don't”. She explained that most of those in the latter group consist of businesses “that have closed or temporarily paused trading, meaning they are also the most reliant on the furlough schemes”.

Scheme for self-employed

In his statement delivered at the Downing Street daily briefing, Sunak also announced an extension to  the government’s Self-Employment Income Support Scheme, which was introduced at the end of March. Those eligible will be able to claim a second and final grant worth 70% of their average monthly trading profits capped at £6,570 for a three-month total.

The government published further details on the scheme.

According to the Labour Market Outlook report issued in mid-May by the Chartered Institute of Personnel and Development and recruiter Adecco, more than a fifth (22%) of organisations expect to make some job cuts in the three months to July 2020 — up six percentage points on the previous quarter.

The report also found that employers making use of the UK’s Coronavirus Job Retention Scheme said that they would, on average, have cut 35% of their workforce if it weren’t for the scheme.

Meanwhile, despite the Bank of England’s prediction that UK unemployment could double, consumer sentiment has shown a modest improvement since April, according to a PWC survey. Its latest Consumer Sentiment Survey, which measures the balance of opinion on whether people are financially better or worse off, showed a rise in sentiment to -12 in May from -14 in April.

For more news and reporting on the coronavirus and how management accountants can handle challenges related to the pandemic, visit FM’s coronavirus resources page.

— Oliver Rowe (Oliver.Rowe@aicpa-cima.com) is an FM magazine senior editor.