Business secretary Kwasi Kwarteng on Thursday strongly defended the government’s move to start reducing state funding of the furlough scheme ahead of the full lifting of coronavirus restrictions in England.
From Thursday, companies have to shoulder more of the costs of the programme, even though restrictions affecting several industries including hospitality are not due to be lifted until July 19.
Statistics published by HM Revenue & Customs showed more than 1m workers came off the government’s job retention scheme during May following the reopening of indoor hospitality in England.
Some business groups have urged the government not to begin cutting state funding of the furlough scheme until all the restrictions affecting companies have been lifted.
But Kwarteng said the scheme had been “an exceptional policy in extreme times, in unprecedented times” and it had to be phased out.
From Thursday the government cut the amount it pays furloughed company workers from 80 per cent to 70 per cent of wages, with employers expected to make up the 10 percentage point reduction.
Kwarteng said: “Furlough wasn’t going to last for ever and as we open up in two weeks’ time this is the right time to think about the balance of payroll which the government pays and which employers pay.”
Government funding of furlough scheme will be reduced over the next three months, with the programme due to end in September.
The HMRC statistics showed there were 2.4m people fully or partly furloughed at the end of May.
Office for National Statistics data suggested the number on the job retention scheme had fallen further, to between 1.3m and 1.9m by early June, with just under half fully furloughed.
The HMRC figures also showed that eight of the 10 local authorities with the highest take-up of the programme were in London, which has also recorded the biggest rise in unemployment and welfare benefits claims.
Some business groups share the government’s view that it is now time for the furlough scheme to be phased out, because companies in certain industries are struggling to hire workers with the right skills.
Lord Karan Bilimoria, CBI president, warned this week that the “paradoxical effects” of the scheme were now contributing to a “perfect storm” in hiring, because the more successful it was, “the smaller the talent pool for businesses, here and now”.
But other business groups have warned unemployment will rise as the programme is wound down, because many companies that are unable to operate remain reliant on it.
HMRC figures showed use of the scheme is now concentrated on industries that are still severely constrained including aviation, travel agencies and tour operators, and the arts and events sectors.
The government originally planned to lift the remaining restrictions imposed in England’s third lockdown by June 21, but delayed the move until July 19 because of the rapid spread of the Delta variant of coronavirus.
Mike Cherry, national chair of the Federation of Small Businesses, said the government risked a “serious economic flashpoint” this week.
“Last year the government told us that it would do ‘whatever it takes’ to help the 5.9m sole traders and small businesses on which our recovery will depend,” he added.
“But now, after a crushing delay to the reopening road map, the new support measures are limited to those which do not cost the Treasury a penny.”
Last month the Treasury extended a ban on evictions of commercial tenants by landlords until March 2022.
It also extended through the summer a ban on winding up petitions, under which struggling companies are forced to file for insolvency.