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Chancellor announces arrangements for end of furlough scheme

29 May 2020

The Chancellor has announced that the Coronavirus Job Retention Scheme will close at the end of October, with a new flexible furloughing option from 1 July. Chancellor of the Exchequer Rishi Sunak opted for a “softly softly” approach as he announced the details of the phase out of the furlough scheme – but one which still leaves open the possibility of an end-of-October “cliff edge”.

What has the Chancellor announced about the end of the scheme?

It had been widely expected that Sunak would start to require employers to contribute towards furloughed employees’ wages from the start of August – but in the event he chose to be more generous in an announcement promptly followed up with a new online fact sheet.  Employers using the scheme in August will only be required to meet the cost of pension contributions and employer NICs – the taxpayer will still foot the bill for 80% of employees’ wages up to a maximum of £2,500 per month.  Only from September will employers have to pay 10% of employees’ wages, with the Government paying 70% up to a cap of £2,187.50, while in October the employer contribution will increase to 20% and the taxpayer contribution will reduce to 60% capped at £1,875.  The scheme will then be wound up at the end of October.

Sunak also caused surprise by announcing that “flexi-furloughing” would begin one month early, on 1 July 2020: from this date, employers will be allowed to require employees to work part time in a  manner of their choosing but which may involve, for example, them working two days per week (paid for by the employer), while the furlough scheme pays for the other three days.  The cap on the government contribution will be proportional to the hours not worked – and as claims for flexible furloughing grants will require employers to report on the number of hours employees work and the number of hours they would usually work in the period claimed for, employers will need to come up with a means of recording hours accurately.  The minimum claim period will be one week which may allow, for example, employers in the tentatively-reopening retail and hospitality sectors to “test the waters” by opening for a day or two to see what demand levels are like while still being able to access furlough funds.

What is the cut-off date for new entrants to the scheme?

To facilitate this, the existing furlough scheme will be closed to new entrants from 30 June 2020 – and as any furlough period must be for a minimum of three weeks, the latest date that an employee can be placed on furlough for the first time is 10 June 2020.  Awkwardly, this date falls two days before further guidance on flexible furloughing is due to be published on 12 June 2020.  Only those who have previously been furloughed will be eligible for further furloughing post-1 July, although it seems that “rotational” furloughing will still be permitted – but claim periods will no longer be allowed to overlap calendar months.

What about support for the self-employed?

The Chancellor also announced an extension of the support scheme for the self-employed: they will be able to make applications for further grants of up to 70% of average monthly trading profits for a three month period up to a maximum of £6,570 in August 2020. 

What are the immediate issues for employers?

The announcement raises a number of immediate questions for employers.  The imperative to move forward with redundancy exercises sooner rather than later due to an inability to meet any employment costs from August onwards may have abated slightly with employers facing the prospect of only a modest financial contribution (and doubtless this was the Government’s intention) – but it isn’t removed entirely.  We are aware that many employers - particularly larger ones facing the prospect of a 30 or 45 day minimum collective consultation period, potentially followed by lengthy notice periods – have been waiting for today’s announcement to decide whether, when and how to move forward with restructuring, and it is not certain that this announcement is likely to change much: employers may feel it is better to move forward, even if they still hope to avoid redundancy notices or to rescind them at a later date once served, not least so as to ensure that at least some notice costs can be covered by the furlough scheme.

At the same time, employers will need to hurry to consider what use they want to make of flexi-furlough from 1 July – and revisit contractual arrangements to see what changes (and associated consultation) may be needed to facilitate this.  The Government will hope these new proposals will stave off widespread redundancies – but with a drop from covering 60% of earnings on 31 October to 0% on 1 November, it very much remains to be seen whether conditions pandemic and economic will permit this.

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