Will the end of the furlough scheme bring with it a surge in unemployment?

Could the trapdoor to unemployment be about to open under the feet of thousands in the county? That's the fear as the furlough scheme finally ends in two weeks' time.

And while it now looks unlikely the biggest employers will announce swingeing cuts as the government's support is withdrawn, there are concerns smaller firms may bear the brunt as they slowly seek to rebuild their businesses after the ravages of the lockdowns.

“Those making large scale redundancies will already have had to start the process a few months ago," explains Amanda Finn, partner and head of employment law at Gullands Solicitors.

The reason for that is that if more than 20 staff are to be let go, a firm has to notify the Insolvency Service before the 30-day consultancy period can begin to allow support measures to be in place.

She adds: "But smaller organisations will now be faced with looking at the end of the furlough subsidies.

"I do anticipate a small surge in certain sectors. Not least because when employers sense a difficult market they often look at what operational savings can be made.

"Those who have managed to continue with less staff due to furlough will be considering whether they need to increase staffing levels to pre-pandemic levels or have achieved efficiencies that can be continued going forward.”

First announced in March 2020 by Chancellor Rishi Sunak, the Coronavirus Job Retention Scheme was ushered in as the first national lockdown was introduced. Designed to pay up to 80% of workers' wages, capped at £2,500 a month, it is thought to be responsible for safe-guarding millions of jobs.

Over the course of this year, the onus for those still utilising the scheme has progressively switched towards the employer, with the estimated 1.6 million still left on the scheme – a number which has been steadily reducing– now seeing Whitehall paying no more than 60% of their monthly wage packet, with employs paying at least 20%.

And it's not been cheap. By the middle of June, the furlough scheme had cost the government a staggering £65.9 billion.

At the end of July, official government figures said 1.6m workers were still on the scheme. That was down from a peak of 5.1m in January. Throughout the pandemic, some 11.6m workers have been on the scheme at some point.

Official figures revealed that at the end of May, the sectors most reliant were, perhaps not surprisingly, accommodation and food services – where 34% of eligible jobs were being supported by Whitehall – and the arts and entertainment sector, where 29% of staff were on the scheme. This is likely to have slightly eased as the reopening continued.

In comparison, other sectors were at 11% or less, as the economy picked up and a 'near normal' service was resumed after the disruption of the last 18 months.

Travel agent association ABTA revealed the results of a survey which suggested seven out of 10 of its members, with staff still on furlough, planned to make redundancies when the scheme ends. And many reliant on the travel industry are likely to be in similar situations.

Andrew Tate is restructuring partner at business advisors and accountants Kreston Reeves. He explains: “It can be expected that, unless circumstances for the employers [with staff still on furlough] have changed drastically since the end of July, there will be a significant number of people where businesses still cannot afford to take them fully back into full pay.

"It is a pivotal time for the economy with many positives but there are also considerable pressures on businesses, some of which are hitting business revenues and margins hard.

"With the spectre of inflation and tax rises on the horizon, business owners will be reluctant to entertain any unnecessary expenditure.

"Of course, a business could find itself in a 'catch-22' where it can’t afford to keep staff but also can’t afford the redundancy costs to let them go either. Businesses have gone bust in the past trying to reconcile that issue.”

Certainly the government's recent announcement of a hike in the National Insurance (NI) to help pay for the NHS and social care costs – due to be introduced at the start of the next tax year, April 2022 – will be on the minds of many employers.

“The furlough scheme has been helpful in reassuring business that the support has been there," says Tim Aker, from the Federation of Small Businesses.

"It’s the smallest employers, and their teams, that will bear the brunt of furlough’s wind-down, however.

"Labour costs are rising, and skills shortages are making it harder and harder to recruit.

“What our members are looking for at this point are measures to facilitate the confidence and cashflow they need to retain and recruit as we head into the critical final quarter of the year. As such, last week’s announcement of NI and dividend tax hikes came as a real blow. The tax increases just announced threaten to pull the ladder away just as businesses are climbing back to recovery.”

Certainly the jobs market has been on something of a rollercoaster ride over the last 18 months.

Figures released by the Office for National Statistics this week revealed, for the first time, that vacancy numbers, nationwide, had hit the one million mark.

Meanwhile, figures from the Insolvency Service revealed the number of planned job cuts for last month were down 11% on July, to 12,686, fuelling hopes the shock to the system caused by the end of furlough will not be as seismic as feared.

At the height of the pandemic, firms were proposing more than 150,000 jobs cuts a month.

So, is the solution simply that those being made redundant when furlough ends can fill the growing number of vacancies elsewhere?

Not according to the British Chambers of Commerce. Its head of economics, Suren Thiru, explained: "The jobs market has continued its summer revival as demand for workers has surged following the easing of Covid restrictions.

“But record vacancies also highlight the acute hiring crisis faced by many firms. With Brexit and Covid driving a more deep-seated decline in labour supply, the end of furlough is unlikely to be a silver bullet to the ongoing shortages.

“These recruitment difficulties are likely to dampen the recovery by limiting firms’ ability to fulfil orders and meet customer demand.

“Although the peak in unemployment will be lower than previous downturns, with rising cost pressures and an increasingly onerous tax burden likely to stifle firms’ recruitment intentions, a notable rise in job losses as furlough ends remains probable.

'The end of furlough is unlikely to be a silver bullet to the ongoing shortages.'

“Consequently, we expect the UK’s unemployment rate to rise to a peak of 5.1% by early 2022, equivalent to another 174,000 people, nationally, out of work.

“Whether furloughed workers are returning to the workplace or the wider labour market after the scheme ends, it is vital that employers and the government provide the support and training they need to be re-engaged and productive.

“Expanding the Shortage Occupation List [to allow EU workers to be recruited] will also help businesses access the skills they need when they can’t recruit locally.”

The Trade Unions Congress, the trade union movement's umbrella organisation, believes the impact for many of furlough's conclusion could be savage.

Its general secretary, Frances O'Grady said: “While it’s good news that more people are back in work, many working families are facing an uncertain autumn with the end of the furlough scheme – still supporting 1.6 million jobs – and a £20 cut to the weekly budgets of two million low-paid workers.

“The Chancellor needs a plan to support jobs and family incomes. That means stopping the Universal Credit cut and extending the furlough scheme in hard hit sectors for as long as is needed to protect jobs and livelihoods.”

That call, however, is likely to fall on deaf ears.