The pandemic has led to a severe recession. This briefing examines different aspects of the economic impact of the crisis to date and outlines the key issues for the economic outlook.
On 20 March 2020, the Chancellor announced the Coronavirus Job Retention Scheme (CJRS). HMRC would cover 80% of a furloughed employee’s wages, up to £2,500 per month.
The CJRS was initially due to end in May 2020. One year on, it remains, and has supported more than 11 million jobs at a cost of over £53 billion. For now, it has succeeded in keeping unemployment far lower than it otherwise might have been.
This Insight looks at how the CJRS has changed over the year and what might happen once it ends.
Why was the CJRS introduced?
The Chancellor said the CJRS would help avoid redundancies. There would be “no limit” to the amount of support.
It was announced on the same day the Prime Minister said hospitality and entertainment businesses were required to close. Shortly after, this became a national lockdown.
How was the CJRS created?
Unlike many European countries, the UK did not have an existing ’short-time work’ scheme, so the CJRS was set up from scratch. It was set up by Treasury Directions and launched on 20 April. Claims are made online and are tied to tax records held by HMRC. The Organisation for Economic Cooperation and Development (OECD) highlighted the UK’s CJRS as particularly easy to use.
HMRC also published guidance for employers and employees. At times, this has been the source of some confusion. The guidance was changed several times throughout April. When the first Treasury Direction was published, lawyers argued there were inconsistencies with the guidance. The Government maintained there was no inconsistency.
Treasury Directions are made by the UK Government and are not voted on in Parliament. This caused tension in November when devolved administrations and city mayors argued that the Government did not decide to extend the CJRS until England went back into lockdown.
How has the CJRS changed over a year?
The CJRS has been extended four times. When first introduced it covered 80% of a furloughed employee’s wages. No employer contributions were required, and top-ups were voluntary. The chart below shows how the rates of government and employer support have changed over time. This includes the proposed Job Support Schemes, which were never implemented.
One significant change was the introduction of flexible furlough in July 2020. Until this point, employees had to stop working for at least three weeks to claim under the CJRS . Under flexible furlough, employees could work reduced hours and be furloughed for hours they didn’t work.
In September, the Government announced it would replace the CJRS with a Job Support Scheme. This meant employees would work a minimum number of hours and employers and HMRC would share the cost for hours not worked. However, on 31 October, the day the CJRS was set to end, the Government announced a second lockdown and extension of the CJRS.
Who has used the CJRS?
As of 31 January 2021, the CJRS had supported a total of 11.2 million jobs. As a person can have more than one job, the number of furloughed workers will actually be lower. On 8 May 2020, a record 8.9 million jobs were furloughed at one time. The number fell to 1.3 million by October but rose again from November. On 31 January, 4.7 million jobs were furloughed.
It has mainly been in shutdown sectors, like food services, retail and entertainment, that people have been put on furlough. Younger workers, particularly younger women, are overrepresented in these sectors and have been furloughed at higher rates.
The Office of Budget Responsibility found the CJRS helped hold down unemployment and maintain earnings. However, it said unemployment is estimated to rise to 6.5% by the end of 2021 once the scheme ends.
The Resolution Foundation, a think tank focused on living standards, has also raised concerns that long-term furlough might impact a person’s future earnings and wellbeing, especially for younger workers.
Who has been excluded?
The CJRS covers a broad range of employees, provided they are paid through PAYE.
New starters and freelancers who were not employed on the cut-off dates could not be furloughed. Workers not paid via PAYE, like those in the gig economy, were also not eligible. There was initial concern that the guidance did not clearly say pregnant employees could be furloughed. Campaign groups have also called for the CJRS to cover 100% of wages for pregnant employees who are suspended for safety reasons.
It is employers who take decisions on furlough. This means zero-hours and agency workers could be refused furlough and have their hours cut instead.
In June 2020, ExcludedUK, a campaign group for people who have missed out on income support, estimated that 790,000 people had been excluded from the CJRS.
What next for the CJRS?
The CJRS is set to wind down over the summer and end on 30 September 2021. Ministers have suggested the Government might re-introduce the Job Retention Bonus, where employers are paid £1,000 for each furloughed employee they keep on. However, unemployment is expected to rise.
One question is whether the UK will set up a permanent scheme to support jobs during economic crises. A number of EU countries that introduced new schemes during the 2008-09 financial crisis now have permanent schemes. New schemes, like the CJRS, have performed well and countries with existing schemes had to adapt them for the pandemic. However, the Chancellor said some of the gaps in support resulted from the CJRS being set up at pace.
To date, the Government has not suggested the UK will adopt a permanent scheme.
FAQs: Coronavirus Job Retention Scheme, House of Commons Library
Coronavirus Job Retention Scheme: statistics, House of Commons Library
Coronavirus: Getting people back into work, House of Commons Library
Long Covid in the labour market, Resolution Foundation
One year on: we averted a jobs catastrophe, now we need to secure the recovery, Institute for Employment Studies
About the authors: Brigid Francis-Devine specialises in economic policy and statistics and Daniel Ferguson specialises in employment and equality law at the House of Commons Library.
Corrections and clarifications
This piece was amended on 25.03.21 to include information on pregnant employees.