Furlough warning as Britons set for ‘big income losses’ with unemployment crisis looming
Furlough is slowly winding down, with the Government withdrawing a percentage of its support mere days ago. Previously, the Government contributed 80 percent of the wages of those on the scheme to ensure they did not lose their jobs during the pandemic. However, in efforts to conclude the scheme by the end of September, employers have been required to take on additional financial responsibility.
The Government now only pays 70 percent of wages, and will step down further to 60 percent in August and September.
An observation report from the Institute for Fiscal Studies has warned what this could mean for the estimated 3.4million workers who were recorded as on furlough at the end of April.
The report states a furloughed employee formerly earning £20,000 a year previously cost an employer £155 per month to keep on.
This has stepped up to £322 in July, but will increase once again to £489 per month in August and September.
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But it warns this benefit is likely to provide a “very different kind of support” than what was available under furlough.
This is because Universal Credit prevents living standards from dropping, rather than offering a replacement to earnings.
It has stated that when furlough ends, a single person on a pre-furlough income of £20,000 who owns their own home will have a Universal Credit entitlement of less than a quarter of their pre-tax furlough payment.
But those who have a high-earning partner should be particularly alert if they lose employment under furlough.
This is because Universal Credit is based on family earnings, and therefore the individual who lost employment would not be entitled to this kind of support.
The report concluded: “There are two types of furloughed employees who are going to see big drops in the amount of support they get from the Government if they become unemployed.
“The first are those who, whatever their previous earnings, have a relatively high earning spouse or significant level of savings, meaning they will qualify for little to no Universal Credit.
“The second type are middle or higher earning individuals. Under furlough, they got more support in cash terms than furloughed lower earners.
“But under Universal Credit, their previous higher levels of earnings do not make them eligible for any extra support.”
The observation highlighted that this seemingly reflects a political choice in the design of the welfare system.
It chooses to focus on particularly low earners, rather than looking at a fall in income as a result of job loss.
The Government has said employers can choose to top up their employee’s wages above the £2,500 cap.
However, this will have to be done at a business’ own expense.
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