The long farewell to furlough

With the Government having published its roadmap for relaxing lockdown restrictions, many had expected that the CJRS (furlough scheme) would be extended at least into the summer, to provide a financial cushion to businesses as they reopen.   In the Chancellor's Budget on 3 March 2021, he announced that the scheme will in fact be extended to the end of September 2021, 5 months beyond its previous end date of 30 April 2021. 

Some new employees will be eligible for the extended scheme.   For claim periods starting on or after 1 May 2021, employers can claim the grant for employees who were employed on 2 March 2021, providing they made a PAYE Real Time Information submission to HMRC for that employee between 20 March 2020 and 2 March 2021. Employers do not need to have previously claimed for an employee before  2 March 2021 to claim for periods starting on or after 1 May 2021. 

The terms of the scheme are also changing, with the level of financial support reducing from July onwards.   Employers currently have to pay the cost of auto-enrolment pension contributions and National Insurance contributions only, and can claim a grant for 80% of wage costs for hours not worked, up to a cap of £2,500 per month.  For claim periods from 1 July 2021 onwards, the grant will cover 70% of wage costs for hours not worked, up to a cap of £2,187.50 per month, leaving the employer to fund the additional 10%.  From 1 August onwards the grant will cover 60% of wage costs for hours not worked, up to a cap of £1,875 per month, with the employer funding the additional 20%.   As before, employers will be permitted (but not required) to top up wages for unworked hours.  

The aim of the extension is to avoid mass redundancies (particularly in tourism, retail, leisure and hospitality) and enable businesses to benefit from the gradual reopening of the economy while still receiving some financial support with wages.   But it remains to be seen whether it will have the desired effect.   It's notable that the Job Retention Bonus scheme wasn't mentioned in the Budget, so businesses should not rely on it being reintroduced to provide an additional incentive to retain staff.   The finances of some businesses are sufficiently fragile that the additional staff costs they would have to cover from July would be unsustainable, so they will need to trigger lay-off clauses, change contractual terms or make redundancies at that stage.   

Those businesses will need to invest time now in financial projections to assess what their options will be.   In many cases this will depend on how quickly the UK can progress through the roadmap stages (e.g. whether the 'work from home' guidance is loosened in late June or remains in place throughout the summer).  Although the Budget has provided some helpful clarity about the future of the furlough scheme,  the financial uncertainty for many businesses will remain for some time.