In the Budget announced on 3rd March 2021, Chancellor Rishi Sunak has confirmed that the Coronavirus Job Retention Scheme (“furlough scheme”), which was due to end on 30th April 2021, will now be extended until the end of September 2021.
What does the furlough scheme cover and how much will employers have to contribute?
- Employees will continue to be entitled to receive 80% of their wages (subject to a cap of £2,500 per month) and may be continuously furloughed or placed on flexible furlough (working for part of their normal hours).
- Until July there will be continue to be no employer contribution to wages. Employers will still be required to meet employer National Insurance contributions and minimum auto-enrolment pension contributions.
- In July, employers will have to contribute 10% of furlough wages (plus NI and pension), with the Government’s grant covering the remainder of furlough wages.
- In August and September, employers will have to contribute 20% of furlough wages (plus NI and pension), with the Government’s grant the remainder of furlough wages.
In Autumn 2020, the Government announced that it would scrap the Job Retention Scheme Bonus, which was due to be paid in January 2021. The Bonus was to comprise £1,000 for each employee who had been on furlough and who was retained by their employer. Instead, the Government indicated that would put in place an alternative retention incentive. However, the Budget did not contain any details of further retention incentives, and it looks unlikely that any new scheme will be forthcoming.
Other employment law announcements
- The National Living Wage will rise this April from £8.72 to £8.91 (for those in the 23 and over age bracket).
- Income tax and NI rates will not be changed. Personal allowance thresholds will rise in April, but will then be frozen until 2026.
- A new HMRC taskforce will be set up to combat furlough scheme fraud.
- In August 2020, the Chancellor introduced financial incentives for employers taking on apprentices, offering a grant of £2,000 per apprentice aged 16 to 24, and £1,500 per apprentice aged 25 and over. This scheme was due to end in March, but has now been extended to the end of September. Further, from April the level of grant will be increased to £3,000 per apprentice, regardless of age.
Our Thoughts on the Budget
This Budget package had to transform a blurry picture of the public finances into a clear, sensible and practical outlook for financial support as the recovery from Covid-19 begins in earnest. While the Chancellor may not have provided complete clarity for the next year, business leaders will welcome the package announced yesterday. It goes some way to shed light on the outlook for businesses that are sustainable in the long run.
The extension of the furlough scheme is one of the standout elements of the Budget and should help to bridge the gap between the end of the scheme and return for a significant segment of the population. It was inevitable there would be some form of tapering off as the furlough scheme winds down. Employers remain responsible for National Insurance and pension contributions for hours not worked, resulting in an often significant outlay for businesses across many industries where the Covid measures has not permitted any real recovery yet. Businesses will be hoping to open as soon as possible to start generating revenue that will counteract their increasing overheads and tax commitments as the scheme draws closer to its end.
Employers will need to prepare for the end of the furlough scheme in good time, particularly bearing in mind the statutory time periods for collective consultation in the event of large-scale redundancies. In the details of the ‘winding down’ of the scheme, we hoped to see a continuation and extension of the scheme’s flexibility. In particular, re-introduction of the scope of furlough to include individuals working their notice would be a significant benefit to employers, with so many workers moving jobs. Flexibility is essential to help businesses plan their own recovery. We are dissecting the guidance and will provide further updates to all of our clients, and our FAQs, shortly.
The stand out elements of this Budget are the extension of furlough, combined with business rates relief being significantly extended, maintaining lower VAT levels and financial support in recruiting young people, all of which are likely to extend beyond the current ‘best case scenario’ timeframe for businesses re-opening. With this budget, businesses can have greater confidence in making positive, proactive decisions for the year ahead.
Without doubt, ongoing communication, synergy of thought and clarity between business and Government will remain integral to us successfully navigating the UK economy back on track. With unemployment figures desperately high, the knock on effects of poverty, mental wellbeing, social welfare and attracting capital investment much be continually addressed. The impact of the pandemic has cost more lives and livelihoods than can be measured in fiscal terms. The recovery required to address the endemic inequality arising as well, disproportionately affected women, young people, Black, Asian and other minority groups, to name a few. In my view, the Chancellor’s announcement today has gone a long way to creating an environment where business leaders can begin to address that unintended inequity.