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U.K. Firms May Face Tax, Pension Bills for Furloughed Staff

U.K. Firms May Face Tax and Pension Bills for Furloughed Staff

(Bloomberg) -- U.K. businesses may be forced to pay more in tax and staff pensions as the price for continuing government support to cover the cost of wages for millions of furloughed workers, a person familiar with the matter said.

Under plans being considered by ministers, employers could be required to take over paying national insurance and employer pension contributions for furloughed staff. These are among the options being weighed up as the government seeks to wind down its spending on the program, according to a person familiar with talks between business groups, unions and officials.

Under the emergency policy, designed to help save jobs during the coronavirus lockdown, the government is paying 80% of the wages of some 8 million workers. The cost of the program to date is 11.1 billion pounds ($13.6 billion), according to the Treasury -- but the government’s fiscal watchdog, the Office for Budget Responsibility, estimates it will reach 50 billion pounds by the end of July.

Chancellor of the Exchequer Rishi Sunak last week extended the program until October, but said that from August he wants employers to begin contributing to its costs.

The Treasury didn’t immediately respond to a request to comment.

U.K. banks and their regulators are also discussing allowing customers to delay mortgage payments for as long as 18 months as borrowers struggle through the coronavirus pandemic, Bloomberg reported this week.

“Lion’s Share”

The chancellor has promised to announce details on how the government’s support could be eased by the end of May, and Treasury officials are in continuous talks with business groups and unions on the details. Sunak has guaranteed that employees will continue to get four fifths of their wages, up to a maximum of 2,500 pounds a month.

“From August to October the scheme will continue for all sectors and regions of the U.K., but with greater flexibility to support the transition back to work,” he told the House of Commons on May 12. “Employers currently using the scheme will be able to bring furloughed employees back part time. We will ask employers to start sharing with the government the cost of paying people’s salaries.”

The chancellor later the same day said in a BBC interview that the government would continue to shoulder the “lion’s share” of the cost.

The announcement will mark the first time Sunak has had to turn off some of the emergency spending he announced in response to the pandemic, which now stands at 123 billion pounds, according to the OBR. He has to balance the need to rein in expenditure with the risk that unwinding the program too quickly could cost jobs as employers struggle to cover the extra wage bills.

Costs for Employers

Options being discussed include making companies start paying again all or some of the employer pension and national insurance contributions that the government has has been footing since the program was first announced in March. Employer mandatory pension contributions are 3% of wages above a certain threshold, and for national insurance, the proportion is 13.8%.

Other proposals include getting employers to pay 20% of wages with government shouldering 60%, or even asking businesses to meet half the cost of the furlough payments, according to the person, who asked not to be identified because the talks are private. Another possibility is to progressively reduce, or taper, the government contribution through August, September and October, the person said.

On Tuesday, Sunak warned the U.K. faces a severe recession and that it isn’t obvious the economy will immediately bounce back. He has repeatedly said he is focused on protecting jobs during the coronavirus lockdown, but has emphasized that he can’t protect all of them. The Bank of England has predicted that a three-month lockdown could lead to a 14% slump this year -- the deepest recession since the early 18th century.

©2020 Bloomberg L.P.