How Has The Furlough Scheme Affected The British Economy?
The pandemic has impacted nearly everyone in the UK, so now it’s hopefully time to start coming out the other side of it. Unfortunately, due to the effects of the pandemic, many people lost their jobs as businesses made cuts across the board. Some people were then facing financial difficulty and had to outsource income through means of a short term loan or credit card. However, the government stepped in and put a furlough scheme into place to try and help employees and businesses alike. Keep reading to find out more, and how exactly this scheme has affected the British economy.
What Is The Furlough Scheme?
As businesses were forced to close during the lockdowns, people were advised to work from home. However, not all jobs can be translated into home working. For instance, baristas and tattoo artists were just two of the job sectors that were now suddenly out of work. To counteract the loss of wages, the government agreed to pay 80% of people’s wages, with a limit of £2,500 per month. This scheme was a way for businesses to close without having to pay out more money than they were bringing in. Towards the end of the scheme, the government percentage contribution was reduced to 60% and employers then had to pay the extra 20%.
What Impact Did It Have On The Economy?
If you think about how many businesses had to close their doors during the lockdowns, it would be impossible to count. Now imagine if all of them couldn’t re-open due to the loss of earnings and having to spend all their available finance on employee wages. This would have a devasting effect on the economy as thousands of businesses would be forced to close permanently. A lot of these would have also been smaller businesses, which despite their size play a vital role in the economy. Although the businesses that had to close were called “non-essential”, they’re actually vital to keeping the economy going. Their taxes and employment opportunities are irreplaceable, so the furlough scheme was definitely necessary.
When open, businesses provide employment and financial independence for the general public, which means fewer people will need monetary support from the government. All businesses will pay tax as well, which feeds back into the economy and helps keep it afloat. Without these taxes, the public would have to pay higher taxes in order to maintain the same cash flow being fed into the economy. The furlough scheme helped keep these businesses afloat and helped to prevent high levels of unemployment. This scheme was vital to people’s lives, but it was also crucial to ensuring the economy didn’t crash.
The furlough scheme came to an end on the 30th of September 2021, as people were now free to head back to work and re-open their businesses. The total amount of money spent on this scheme was close to £70 billion, so although it was essential, it isn’t sustainable long-term. As of March 2022, roughly 93% of businesses are now back trading again. If the furlough scheme wasn’t put in place, this number could potentially have been a whole lot lower as more businesses could have collapsed.
Moving into a post-pandemic world, the use of the furlough scheme has hopefully helped enough businesses and stopped them from going under. Ensuring there were businesses still functioning after the lockdowns were essential if the economy was ever to recover. So, while this may have been a large cost at first, it ended up protecting the economy in the long run. As time goes on, we’ll be able to better see the effects of COVID-19 and how the furlough scheme was a lot of people’s, and businesses, saving grace.