Businesses will have to start paying part of the cost of furlough from tomorrow – even though many of them remain shut or operating at limited capacity under lockdown rules.
The Treasury has been paying 80% of the wages of workers temporarily laid off because of COVID-19 for more than a year but the support will start to taper off on 1 July.
A holiday in business rates relief for leisure, hospitality and retail businesses is also starting to be withdrawn.
Another COVID-19 measure coming to an end is the stamp duty holiday, which is being scaled back to a more limited form from the start of July and ending completely in September.
Government support measures were designed to keep much of the economy on life support during a period when many firms were forced to close.
They are starting to be withdrawn now as lockdown measures ease.
But there are fears for the future for those sectors still closed or facing severe restrictions, among them aviation and hospitality – particularly nightclubs.
And the Institute for Fiscal Studies, a respected think-tank, warned of the shock that could face some workers who end up losing their jobs when furlough ends.
Labour’s shadow chief secretary to the Treasury, Bridget Phillipson, tweeted that latest GDP figures, showing a slightly worse performance for GDP than previously thought at the start of this year “show just how fragile our economy is” as support starts to be withdrawn.
“Rishi Sunak shouldn’t be putting our recovery at risk,” she added.
“Economic support must go hand in hand with the restrictions in place for our health.”
How are key government support measures changing from 1 July?
The Coronavirus job retention scheme, which began in March 2020, has been credited with saving the UK from the steep increase in unemployment that had been feared at the start of the pandemic.
It has so far been used to support 11.5 million workers, and 1.3 million employers, and had cost a total of £64bn by mid-May, according to latest HM Revenue and Customs (HMRC) data.
At its peak in May 2020 the number of people on furlough stood at 8.9 million. This had fallen to 3.4 million by the end of April this year according to the HMRC figures.
More recent estimates from the Office for National Statistics (ONS) suggest the total dropped to about 1.5 million by the start of June.
The subsidy scheme has been paying 80% of the wages of workers for hours not worked because of the pandemic, up to a maximum of £2,500 a month.
From tomorrow this will reduce to 70%, with employers having to contribute 10%.
This tapers back to 60% and 20% from August and the scheme ends entirely after the end of September.
A scheme set up to provide a similar level of help for self-employed people had supported 2.8 million people, costing £24.5bn, by mid-May.
Final grants under this scheme, covering trading until the end of September, can be claimed from late July.
BUSINESS RATES RELIEF
Almost 400,000 firms in the hard-hit hospitality, retail and leisure sectors have benefited from a 100% discount in business rates since April last year.
The 15-month rates holiday ends today in its current form, with 66% relief applying from 1 July up to a maximum discount of £2m. The scheme will come to an end next April.
Real estate advisers Altus Group estimates that the scheme will eventually cost a total of £17.1bn.
STAMP DUTY HOLIDAY
In July, the threshold for paying stamp duty was temporarily raised from £125,000 to £500,000 – a holiday which has since been extended but ends in its current form today.
The cut-off for paying stamp duty falls to £250,000 from 1 July and back to £125,000 from October.
The measure was introduced to revive the housing market after a plunge in transactions during the early stages of the pandemic.
Activity has since bounced back sharply and latest figures from Nationwide showed house prices rising at the fastest pace since 2004.
A moratorium on commercial evictions during the pandemic has been a lifeline for some firms unable to pay their rent.
That has been extended into 2022 though not without grumbles from landlords who say some larger business tenants who are well able to pay are taking advantage of the system.
The government has this month come under pressure from businesses to extend support available to firms, particularly with the end of COVID-19 restrictions being delayed from 21 June to 19 July and with the reopening of travel being much more sluggish than many had hoped.
Business groups have warned that without more help such as a continuation of full furlough support or business rates relief for particular sectors, many thousands of jobs could be at risk in areas such as hospitality and aviation.
However, the Treasury has been stressing the need to repair the UK’s battered public finances over the medium term, after a crisis which is currently estimated to cost it more than £400bn, and has seen annual borrowing hit a post-war record, with debt climbing to more than £2trn.
The IFS said: “The unwinding of the furlough scheme represents a step towards ‘normality’ in the labour market, but it also will mean big income losses for many of those who end up unemployed unless they are swiftly able to find alternative employment.”
Tom Waters, senior research economist at the think-tank said: “The furlough scheme does need to be wound down as the economy recovers, rather than attempting to keep every job on life support.
“But this does mean that some will end up unemployed and turning to alternative programmes – primarily universal credit.
“While some will be relatively protected, others will find that the transition from furlough to universal credit will mean very large falls in income indeed.”