WORK IT OUT

Two million jobs could be lost by changes to the furlough scheme, experts warn

BRITAIN will be hit by as many as two million job cuts if the chancellor makes cuts to the furlough scheme, experts have warned.

Rishi Sunak is this afternoon expected to announce employers will need to top up 20 per cent of workers' pay, as well as national insurance and pension contributions, from August - a cost many businesses won't be able to meet.

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Institute of Economic Affairs Research Fellow Len Shackleton said most businesses will have to lay off staff to make ends meet.

He said: "​I would expect that redundancies will follow pretty quickly.

"It seems likely that the only way to avoid bankruptcy for many, particularly small businesses, will be to make staff redundant and/or close the business down completely.

"I would expect the biggest hits in areas where social distancing will where social distancing will mean much smaller capacity - restaurants, cafes, many pubs, smaller shops."

Non-essential retail will be able to cautiously reopen from June 15, but Professor Shackleton warned even then, people will be hesitant to spend money and boost the economy.

He said: "Many consumers are going to be very cautious about going into potentially crowded places. Home-based lifestyles are going to be more popular.

"In time business will react to this, but in the short run many jobs will necessarily disappear - I would think at least two million jobs will go."

There are currently 8.4 million people on the furlough scheme - formally known as the Government retention scheme - at a cost of roughly £14billion a month, according to the Office for Budget Responsibility.

Mr Sunak announced earlier this month the scheme would be extended until October - but warned employers they would have to start pitching in.

The total cost of the scheme is estimated to hit £80 billion.

The changes to the scheme will apply to all sectors - even those that are yet to reopen.

Head of the Institute for Fiscal Studies Paul John said the scheme has been propping people up in jobs which were already "non-existent".

He told The Times: “It’s important to encourage employers to get employees back to work where they can.

“Where they can never get people back to work there is a cost of continuing to subsidise jobs that no longer exist. We need to start shaking out jobs that are gone.

“Make it too generous and you are in danger of slowing down the recovery by keeping people in non-existent jobs.

"Make it not generous enough and you are in danger of forcing people out of jobs that do have a long-term future.”

Mr Johnson said: “It is a real shame that this can’t be done on a more targeted basis by sector.

"The Treasury is working on the assumption the lockdown is ended. If bars and restaurants are still locked down a different approach will be appropriate.”

One in four firms have admitted they cannot afford to top-up furloughed workers' salaries - a warning sign of just how many job cuts are to come.

A survey of almost 700 company directors by the Institute of Directors will found about half of those using the scheme could provide 20 per cent or more towards staff wages between August and October.

A quarter of company directors polled said they could not afford any amount.

More than a third said they would bring the majority of their furloughed workers back part-time from August.