Millions of households across the UK will be on a financial 'cliff edge' when furlough schemes wrap up in October, new research suggests.
At the start of August, some 26% of people on furlough were in serious financial difficulty or were struggling to make ends meet, raising questions about how household finances will fare when the scheme ends on October 31.
According to Standard Life Foundation, out of the 3.7m households which took payment holidays, 60% are already facing financial difficulties and will struggle to pay a debt when payments resume again.
Those most affected are workers who did not qualify for full furlough support from the government, such as freelancers and contract workers.
We are facing a cliff-edge situation at the end of October. Three million households have fallen through the cracks on the government's job retention programmes. They will be joined by millions more when furlough schemes come to an end. This is happening at the same time as the vast majority of payment holiday measures come to an end, creating a perfect financial storm- incomes reducing whilst outgoings are set to increase.Said: Mubin Haq, CEO of the Standard Life Foundation
Since March 1, the UK government operated a furlough scheme, designed to limit redundancies and offer a lifeline to employees and businesses during the lockdown.
Certain employees who were prevented from working as a result of the lockdown have been able to claim up to 80% of their full-time salary through furlough.
However, the scheme is set to close in October, meaning that many businesses - and their employees- will need to confront the economic reality of the crisis head-on.
The 31st October deadline is shared with the end of so-called 'payment holidays' from banks and lenders, which have allowed people whose income has been affected by the pandemic to forgo monthly debt repayments without facing harsh consequences.
Early on in lockdown, around 1 in 6 mortgages in the UK was registered for a payment holiday. While many homeowners have now returned to ordinary payments, those hardest hit may still be relying on the scheme.
Already nearly half of those on payment holidays are using credit to pay for food and other daily essential expensesSaid Mr Haq
In a recent YouGov survey, more than half of businesses said they planned to lay off staff after the furlough scheme closed.
This prompted questions from some experts about whether October is too soon to stop offering support to those who lost their jobs because of the pandemic.
The planned closure of the furlough seems to be a mistake, motivated by an understandable desire to limit spending. The scheme was intended by the Chancellor to be a bridge through the crisis, and there is a risk that it is coming to an end prematurely, and this increases the probability of economic scarring.said deputy director of the National Institute of Economic and Social Research, Garry Young, speaking last week
Despite concerns, Chancellor Rishi Sunak has insisted that the scheme will not be extended beyond the October deadline. In a statement to MPs, he said that continuation of the furlough scheme would give people' false hope' of returning to their jobs.
Professor Elaine Kempson, one of the authors behind the Standard Life Foundation report, that extending the job retention scheme would protect those hardest hit by the pandemic:
Like Germany and Norway, the UK Government should extend the job retention schemes, particularly for less-skilled workers in hard-hit sectors of the economy
The latest figures from the Treasury show that over 9 million workers have been put on the scheme, costing £20.8 billion.
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