Rishi Sunak

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Rishi Sunak has ruled out an extension to the furlough scheme beyond October

Companies using the government’s coronavirus furlough scheme are now having to contribute to workers’ wages.

Since March, the Coronavirus Job Retention Scheme has paid 80% of the wages of workers placed on leave, up to a maximum of £2,500 a month.

But now that is going down to 70%, with the employer paying 10%.

The scheme is due to finish at the end of October and Chancellor Rishi Sunak has repeatedly ruled out an extension to it.

Last month, he said it was “wrong to keep people trapped” in a situation where there was no realistic prospect of them having a job to go back to.

From 1 September, the government will pay 70% of wages up to a cap of £2,187.50 a month. Employers are already paying employees’ pension contributions and National Insurance, but will now have to pay 10% of salaries as well.

In October, the government will pay 60% of wages up to a cap of £1,875. The employers’ share of the bill will then go up to 20% of wages.

Unemployment fears

The increased cost of the scheme poses a problem for employers, who face difficult decisions about whether to make staff redundant.

Craig Beaumont of the Federation of Small Businesses told the BBC’s Today programme that one million small employers across the country had used the furlough scheme.

He said that 23% of small employers were considering reducing their headcount in the next three months.

“This is very very serious. That’s a huge section of the economy,” he said.

“Sixty per cent of those who work in the private sector do so for a small business, so if that happens without any intervention, then that’s a huge increase in mass unemployment.”

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Acas has seen a huge rise in calls to its redundancy advice line

Paul Dales, chief UK economist at Capital Economics, told the programme that other countries, such as France and Germany, had extended comparable schemes.

Last week, for instance, Germany agreed to extend a scheme that tops up pay for workers affected by the coronavirus pandemic until the end of 2021.

“The UK scheme, in that sense, looks a little bit short, especially when you take into account that the UK’s economy is made up of a higher share of sectors that are hampered by social distancing,” Mr Dales said.

However, he added that many jobs were currently “frozen” and would not come back after the coronavirus crisis.

“You do want to start the process of reallocating those people to jobs that will be around for many many years,” he said.

‘Masking the damage’

The impending end of the scheme is already having an impact on the economy, analysts say.

Conciliation service Acas has said calls to its redundancy advice line almost tripled in June and July, as concerns mounted about the implications.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: ”The unwinding of the furlough scheme has been followed by announcements of significant job losses across multiple sectors, particularly travel and retail.

“Although growth has been recovering as lockdown restrictions have eased, it has become increasingly clear that the government’s job retention scheme has been masking the damage wreaked by the pandemic on jobs and the wider economy.

“As the scheme tapers further at the start of next month and the government stops subsidising wages altogether by 31 October, we would expect economic recovery to lose momentum as businesses across many industries are forced to lay off more staff.”

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