May 12, 2020
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UK's furlough scheme extended, but employers must pay up too

May 12, 2020

Britain extended its job retention scheme -- the centrepiece of its attempts to mitigate the coronavirus hit to the economy -- by four months on Tuesday but told employers they would have to help meet its huge cost from August.

UK Chancellor Rishi Sunak - Reuters

Chancellor Rishi Sunak said 7.5 million temporarily laid off employees -- almost one in every four British workers -- were now on the scheme.
He said they could rest assured that they would continue to get 80% of their wages -- up to £2,500 a month -- until the end of October.
But Sunak said the scheme was expensive and could not continue indefinitely.

"We have stretched and strained to be as generous as possible to businesses and workers," he told parliament.

"This scheme is expensive. It is the right thing to do -- the cost of not acting would have been far higher -- but it is not something that can continue indefinitely into the future."

The scheme is designed to stop a rise in unemployment from turning into the kind of leap seen in the United States.

But at about £10 billion a month, its cost is close to the amount Britain spends on public health services.

Sunak said that from August, employers currently using the scheme would be allowed to bring furloughed employees back part-time, something business groups had been calling for. He also told companies they would have to start sharing the cost of the scheme from August. That's the case even if their businesses are making no money, which means layoffs remain likely.

The UK is racking up new debt at a furious pace: it is due to issue £180 billion of government debt between May and July, more than previously planned for the entire financial year.

The country's debt mountain exceeds $2.5 trillion and its public sector net borrowing could reach 14% of gross domestic product this year, the biggest single-year deficit since World War Two.

An employers' group said the inclusion of part-time working in the furlough scheme would help companies get back up to speed but said it needed more information on how businesses would be asked to make contributions.

"Many firms that would normally be on a strong footing are still in dire straits," said Edwin Morgan, director of policy at the Institute of Directors.
Sunak said he would provide further details by the end of May.

An economic think-tank said there was a risk that extending the furlough scheme, preventing companies from starting to reorganise their staff and adjust their business models, risked a rise in joblessness once it expires.

"It would have been better to spell out much more clearly what the government intends now, rather than delaying the detail of what Mr Sunak proposes," Len Shackleton, a research fellow at the Institute for Economic Affairs, said.

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