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What does the end of the furlough scheme mean for the economy?

by Michael Blaken

Published on 30th September 2021

Today marks the end of the furlough scheme, a far-reaching initiative brought in by the government as one pillar of its economic measures to help employers and employees get through the pandemic.

the end of the furlough scheme

At its height, the government paid 80% of the wages of people who couldn’t work, or whose employers could no longer afford to pay them, up to a monthly limit of £2,500. The government also covered the employer’s national insurance and pension contributions for a period of time.

More recently, in July 2021 employers were required to pay 10% of salaries, with the government’s contribution falling to 70%.

In August and September, the government’s contribution reduced further, and it now pays 60% and employers pay 20%.

From October 1, it stops altogether.

Almost three million people have moved off furlough since March, but in July there were an estimated 1.1 to 1.6 million still furloughed, so once the scheme ends there is likely to be a significant impact on employers’ wage bills.

The end of furlough also means a large number of people coming back into the labour market.

On the one hand, this is at a time when there are record numbers of vacancies. According to the Office for National Statistics, there were an estimated 1,034,000 vacancies between June and August this year.

On the other, the vacancies are not spread evenly across the economy. Some sectors – such as hospitality, construction, or lorry driving – are suffering from labour shortages. Other sectors are well staffed. It is no means a certainty, therefore, that those coming off furlough, who may be facing redundancy, will easily walk into a new job.

The end of the furlough scheme could be a timebomb for unemployment, but only time will tell.

While furlough created certainty for employees knowing their income was protected, for employers the story was a little different. A number of employers found some of employees were reluctant to move jobs, through fear that, if the pandemic worsened, they would not fall under the furlough rules and could risk being out of a job. So, it is hopeful that the end of furlough will bring a more fluid market for employees.

October 1 will be the first day since the pandemic started for businesses to survive on their own without any further government funding. Swindon’s commercial market appears buoyant and hopefully this will continue to grow, as the pandemic recedes.

If you would like a review of your business, to assess how it could perform over the next 12 months, with no more government support, then please get in touch with the Optimum team.

We help businesses in Cheltenham, Swindon and the surrounding area with their tax and business planning, accountancy, audit & assurance, payroll, bookkeeping and Making Tax Digital.

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