Furlough scheme and SEISS to be tapered off
The Chancellor has announced plans to end the eight-month coronavirus job retention scheme (CJRS) and self-employed income support scheme (SEISS), with taxpayers’ contributions gradually withdrawn from August
Admitting that the furlough scheme “cannot continue indefinitely”, the Chancellor Rishi Sunak outlined his plans on Friday evening during the Downing Street press briefing to reduce taxpayer contribution towards the furlough scheme, but with the flexibility to bring employees back part-time in July.
“I believe it is right, in the final phase of this eight-month scheme to ask employers to contribute, alongside the taxpayer, towards the wages of their staff,” said Sunak.
And in a surprising twist, the Chancellor also committed to extending the self-employed equivalent scheme for the same period, with applications for the slightly reduced second and final grant opening in August.
Furlough next steps
Recognising that businesses have been through an “incredibly difficult time”, the Chancellor started his speech by revealing how the slow introduction of the employers' CJRS contribution will work.
The furlough scheme will continue in its current guise, paying 80% of employees’ wages up to £2,500 with no employer contribution. But from August employers’ will be expected to pay a “modest contribution”.
1/ Our job retention scheme has now supported more than 8 million jobs and over a million businesses.
Today I announced the final phase of this eight-month scheme. This thread outlines how we’ll introduce flexible furloughing in the coming months. pic.twitter.com/6FT4kuWvle
— Rishi Sunak (@RishiSunak) May 29, 2020
At first, the Chancellor explained, employers will only have to cover national insurance and employer contributions, which he said accounts for 5% of total employment costs.
The main change comes into force from September when the government furlough contribution drops from 80% to 70%, with the employer having to pick up the 10%. Sunak reasoned that from this point, “employers will have had the opportunity to make any necessary changes to their workplaces and business practices”.
Then in October, the final stage of the furlough scheme, employers will have to pay 20%, with the government’s contribution shrinking to 60%. After this, the government contributions will finish and the scheme will come to an end.
Although employers will have to prepare for the inevitable end of the scheme, the Chancellor has listened to large and small businesses' request for a more flexible furlough.
As Sunak announced earlier this month, a new element of furlough 2.0 is to enable workers to return part-time whilst still being under the scheme – and this aspect will arrive one month earlier than originally planned, from 1 July.
To illustrate how the scheme will work, Sunak used the example of how a furloughed worker could return for two days and would be paid as normal, while the government would cover the other three days.
However, Sunak added that the introduction of part-time furloughing means the scheme will have to close to new entrants from the end of June, as the flexible aspect is restricted to current furloughed workers. This gives employers only until 10 June to add any new employees to the scheme.
The accompanying government factsheet explains that further guidance on flexible furlough and how employers should calculate claims will be published on 12 June.
Surprise extension of the SEISS
Freelancers and self-employed workers who had urged the Chancellor to extend the SEISS in line with furlough scheme were handed a lifeline at the end of Sunak’s speech, with news of a final grant.
The self-employed scheme will open for applications in August, but with the grant reduced to 70% of their average monthly trading profits. As with the SEISS scheme, the money will be paid in a single instalment covering three months’ average monthly profits up to £6,570, down from the £7,500 cap of the first grant.
The government has not changed the eligibility criteria for the second grant. As with the first version, individuals will have to confirm that they've been adversely affected by Covid-19. However, a self-employed worker does not have to have claimed the first SEISS grant in order to be eligible for this final handout.
The self-employed income support scheme has so far supported 2.3m people with claims worth £6.8bn. The first grant is still open for applications but self-employed workers have until 13 July to apply.
AccountingWEB readers expecting a quiet weekend are now dreading the daunting prospect of the revised furlough scheme’s finer detail. “Some of these calculations are going to be horrendous especially where salary periods don't match up nicely with the calendar month,” noted PandoraSleeps.
Meanwhile, Blick Rotherberg’s Nimesh Shah raised concern on the possible impact of flexible furlough. “The government needs to be wary of more workers being placed on furlough, which will increase the cost of the scheme,” he said. “There will be a natural hit on productivity if workers are being unnecessarily placed on furlough because businesses want to take advantage of the flexible furlough arrangements.”
Stakeholders lined up to praise the government's support. Mike Cherry, the national chair of the Federation of Small Business, called both schemes "a true lifeline for all those protected by them".
Adam Marshall, the director general of the British Chambers of Commerce, said: "The gradual reduction in furlough contributions from the Treasury will give businesses additional time to rebuild their income streams and cash flows."
And Derek Cribb, CEO of IPSE said the SEISS extension was an "overwhelming relief to self-employed people".
The story so far
First announced in March, the furlough scheme has supported more than 8m jobs and was slated to initially last for “at least three months”. However, the Chancellor extended the scheme until October as the UK gradually eases the lockdown and attempts to adjust to some form of normality.
The Chancellor promised the changes would come before 31 May, but as the month fast approached June, AccountingWEB readers were anxious to hear the news so they could prepare.
“I really don't think the government understand how people want to plan," said AccountingWEB regular and FD Tom123. “I need to know whether I can bring staff back on Monday without possibly jeopardising furlough claims going forward for those same staff. After the close of business on Friday is really not going to be helpful.”
To get more detail about both the revised CJRS and SEISS, view this week's AccountingWEB Coronavirus Q&A webinar with Kate Upcraft and Emma Rawson of AAT.