U.K. Furlough Scheme Will End on October 31

The Chancellor Rishi Sunak has announced that the U.K. furlough scheme, which has seen the government pay the wages of company employees, will end at the end of October.

Speaking at the Downing Street Press briefing, Sunak said that the furlough scheme could not run "indefinitely".

He said: "As we reopen the economy, there is broad consensus across the political and economic spectrum, the furlough scheme cannot continue indefinitely."

Sunak said employers will be asked to start contributing towards the final phase of the eight-month scheme, and would be asked to start off with a "modest contribution."

The unprecedented scheme, in which the government pays 80 percent of employees wages, up to a limit of £2,500 a month, will continue as normal in June and July, however from August, employers will have pay National Insurance and employer pension contributions.

The scheme was brought in by the government to prevent a surge in unemployment as businesses were forced to shut their doors and consumer demand fell during the COVID-19 lockdown.

The scheme is currently supporting the wages of 6.3 million employees, according to Her Majesty's Revenue and Custom (HMRC).

In September, the government will pay 70 percent of wages up to a cap of £2,190, with employers paying 10 percent of wages as well as contributions.

From October, the government will pay 60 percent of wages up to a cap of £1,875, with employers paying 20% of wages plus contributions, before the scheme ends at the end of the month.

Rishi Sunak applauds NHS workers
Chancellor Rishi Sunak has announced the furlough scheme will end in October. Henry Nicholls/Getty

The chancellor also said that the furlough scheme will close to new entrants on June 30.

There is no plan to end the scheme sector by sector, with the hospitality sector calling for such an approach, given that pubs and restaurants are likely to be the last to open, meaning many could struggle.

Sunak said: "Eight months is a generous and long period of time and allows companies across the UK to slowly ramp back up and gives them the best possible support to do that."

"We can't protect every job and every single business".

Sunak also announced that self-employed workers across the U.K. will be able to claim a second lump sum of cash from the government from August, to cover lost income while the country is in lockdown.

The grants given by the Self-Employment Income Support Scheme (SEISS) will be worth 70% of a self-employed person's average monthly trading profits to cover three months' worth of income, which will be capped at £6,570.

The first grant that the chancellor paid in March, saw the government pay 80 percent of average monthly trading profits, capped at £7,500.

However he says the new grant, reduced by 10 percent, will be the final grant.

The Federation of Small Business chairman Mike Cherry welcomed the package of support.

He said: "Our five million-strong self-employed community will be greatly relieved to know that the income cliff-edge they were facing in two days' time has now been removed.

"The hope is that more and more sole traders will be able to return to work safely as restrictions are eased.

"Policymakers have rightly recognised that self-employed business owners working in a lot of sectors - not least hair & beauty, events and travel - will be massively impacted by the current downturn for many weeks to come."

However, some business bodies predicted that thousands of "businesses will unravel" once the scheme is tapered off.

Jack Izzard, director of the The Great British Bounceback, a new community of small and micro businesses seeking to rebound from the Covid-19 pandemic, said: "With the flexible furlough scheme the Government is coaxing UK businesses to hand back the crutch rather than rip it away from them.

"When the furlough scheme is ultimately unwound, the sad reality is that thousands of businesses will unravel, but the flexible furlough scheme is the Treasury's best shot at minimising the economic damage.

"The world is a different place now and however delicate the Government's approach in tapering away the support businesses are receiving, when the monetary stabilisers are taken off a lot of firms will not be able to stay upright. The demand and volumes just won't be there.

"But if they are anything, the UK's businesses are agile and able to adapt. Survival is fundamental to the average small company's DNA."

The Joseph Rowntree Foundation, a charity in the U.K. that focuses on poverty, said it remained "essential that people who are unable to work because they are shielding or for caring reasons can continue to access the scheme."

Mike Hawking, Policy and Partnerships Manager said: "Earlier this month, the government committed to introducing support for furloughed workers to train or learn new skills.

"As the focus switches from the immediate impact of the coronavirus to economic recovery, government should urgently bring forward these plans to provide a much-needed boost to skills and helping to build a more sustainable and inclusive economy after this crisis has passed."