Coronavirus furlough scheme could cost £40bn in three months, analysis suggests
A government scheme to cover people’s wage costs during the coronavirus pandemic could cost £40bn over three months, according to new analysis.
The figure is more than three times initial cost estimates by the Treasury which were based on one in 10 employees being furloughed with 80 per cent of their wages paid by the government.
Data gathered by the British Chambers of Commerce (BCC) suggests that the Coronavirus Job Retention Scheme (CJRS) has been significantly more popular than expected, with a third of employers using it.
Half of employers say they will put the majority of their staff on furlough, a leave of absence where they remain on a company’s payroll.
The Resolution Foundation think tank calculates that the state will refund employers between £30bn and £40bn over the three months CJRS is operational from 1 March to the end of May.
The higher than expected bill is likely to test the limits of the government’s claim that it will do “whatever it takes” to support people through the Covid-19 crisis.
Rishi Sunak, the chancellor, has said that the scheme will be extended if necessary while economists have forecast that the alternative – mass unemployment – would be even more damaging to individuals and to the nation’s financial health.
Some 950,000 people made new claims for Universal Credit in the two weeks after restrictions on movement began coming into force in March, with the number of claimants expected to continue to rise.
The cost of the job retention scheme depends on firms’ take-up and the length of time workers need to be furloughed for, said Torsten Bell, chief executive of the Resolution Foundation.
“But with recent surveys implying that at least a third of the private sector workforce could be paid through the scheme, it is likely to cost as much as £30bn to £40bn over three months.”
However, he added: “The economic and social cost of mass unemployment in the absence of such a scheme would be far, far greater.”
Without it, workers face “catastrophic hits to their living standards”, he said.
One in five firms plan to furlough all of their staff, up from 17 per cent last week, according to the BCC’s survey.
The poll found that 37 per cent of businesses say they will furlough between 75 to 100 per cent of their workforce over the next week.
It also revealed that just 1 per cent of firms have successfully obtained a government-backed loan under a separate scheme announced by Mr Sunak last month.
The BCC said it hopes that changes made by the government will improve access to the government’s Coronavirus Business Interruption Loan Scheme (CIBLS).
Banks have been accused of attempting to profiteer off of the crisis by charging interest rates as high as 30 per cent even though most of the risk was underwritten by taxpayers.#
Meanwhile, smaller companies can apply for grants of up to £25,000, depending on their size. According to the survey, 7 per of respondents are receiving grants but 14 per cent had applied for one but been unsuccessful.
Most of these, 83 per cent, said they had not met the criteria, while 14 per cent said the response from authorities was too slow, or did not come at all.
“Our latest data shows that many businesses face a cliff-edge scenario, either at the end of this month or over the course of the next quarter,” said BCC director general Dr Adam Marshall.
“We’ve seen a big jump in the number of firms furloughing staff, and many are now starting to apply for access to Government loan and grant schemes to keep themselves afloat. Yet our research suggests that support is only starting to reach firms on the ground.”