Furlough phase-out in UK may cause steep fall in workers’ income

Thousands of workers will suffer a steep fall in income as employers make redundancies after the furlough scheme begins winding down from Thursday, the Institute for Fiscal Studies warned.

Workers who live with higher earners will be unable to claim benefits and could see their income drop to zero should they lose their job. Families with children could lose as much as a third of their income if they are forced to rely on universal credit, the thinktank said.

“It will mean big income losses for many of those who end up unemployed unless they are swiftly able to find alternative employment,” the IFS said.

The drop will be even larger should the government press ahead with a £20-a-week cut in universal credit, as planned in September, the report added.

The furlough scheme, which protected more than 10 million workers at its peak, in May 2020, and 3.4 million at the end of April, provides employers with 80% of a worker’s salary up to a cap of £2,500 a month.

From 1 July employers must continue to pay 80% of salaries to qualify for the scheme, but they will receive only 70% from the government. In August and September, when the scheme ends, employers will have to pay at least 20% of a worker’s salary, with the government picking up 60% of the wage.

The Treasury’s independent forecaster, the Office for Budget Responsibility, estimates that the government’s outlay on the furlough scheme peaked at £10.1bn a month before falling to an estimated £2.2bn in June.

Some groups are especially likely to be still furloughed, the IFS said, with those aged under 25 or over 65 among the most vulnerable.

Londoners, women, and workers in the cultural, accommodation, and food sectors, are also likely to be furloughed and could be among the most vulnerable to redundancy once employers have to pay a higher proportion of the scheme’s costs.

A single person earning £37,500 a year will receive £30,000 under the furlough scheme, but if they are forced to claim universal credit they will get just £3,750 or £1 for every £8 received in furlough, the report said. If their partners are higher earners they will be excluded from universal credit.

The report said: “While the number furloughed will have fallen as the economy has continued to reopen it is likely that millions of people and their employers will be affected by the phasing out of the furlough scheme.

“With the cost of keeping employees on furlough rising we therefore expect to see rising redundancies over the summer, even before the final end of the scheme.”

Comments are closed.