Employers will have to shoulder more of the costs of furlough from Thursday as the government starts to wind down its flagship job support scheme.
With about 1.5 million workers still on furlough, the change will affect thousands of firms across the country.
Staff will continue to receive 80% of their wages, but employers will pay part of that for the first time.
That could prompt layoffs, with older workers at greater risk of redundancy, according to one think tank.
The Institute for Fiscal Studies said the bill for employers keeping a member of staff on the scheme would rise from £155 per month currently, which covers costs such as National Insurance, to £322 in July and £489 in August and September.
As a result, firms might reconsider whether they will retain staff, the IFS said.
“The furlough scheme does need to be wound down as the economy recovers, rather than attempting to keep every job on life support. But this does mean that some will end up unemployed,” said Tom Waters, a senior research economist at the IFS.
The Treasury says its furlough funding is still “substantial”.
“We deliberately went long with our support to provide certainty to people and businesses over the summer.
“The furlough scheme is in place until September and is amongst the most generous schemes in the world,” it added.
The government has spent £66bn on the Coronavirus Job Retention Scheme, as furlough is officially known, and it has supported 11.2 million jobs since March 2020.
At the end of March this year, more than a third of employers still had staff on furlough. But since then, the gradual opening up of non-essential retail and large parts of the hospitality sector has allowed many of those workers to return.
Now only about one in 20 workers who are employed by businesses are either fully or partially furloughed.
However, some workers in sectors that have been particularly hard hit by measures to curb the pandemic, such as night clubs and international travel, have been furloughed for many months.
The furlough scheme has been praised for providing workers with some security. Unemployment has remained below 5%, despite early fears it would rise much higher as the pandemic pulled the rug from under the economy.
Employers welcomed the scheme as a way to retain staff that were trained and qualified, who they wanted to keep in place for when they were able to reopen.
“We’ve tried to retain as many people as possible,” said Mark Vincent, chief financial officer at travel company, Newmarket Holidays.
“The furlough scheme has been critical. It’s part of the difference between survival and not.”
But he said that realistically, travel firms, which have had two summers of interrupted business, might need to reconsider staffing levels.
“In those winter months, we’re all going to be loss-making and therefore, we’re going to have to relook at what we do with our staffing.”
‘A lot of people didn’t come back’
Steve Haslam, who owns pub chain TLC Inns, is sceptical of the benefits of furlough.
“I am so grateful for the government to have supported my team because, by supporting the team on furlough, my employees, they managed to live and pay their bills.”
But he says it has not helped him retain staff.
“A lot of people didn’t come back to work… because they just didn’t want to come back, either into the industry or they’d gone off and found second jobs. We had one site where 80% of staff left.”
He believes the end of furlough will make it easier for hospitality businesses like his to recruit new staff.
At the start of the pandemic, most of those on furlough were in younger age brackets. They were staff working in hospitality, travel, arts and leisure.
But as the economy has reopened, many younger workers have returned to work. Now about half of the people left on furlough are over 45, according to the Resolution Foundation.
The think tank says that older workers on furlough are now more likely to be let go, if businesses decide to restructure in the face of uncertainty.
“Reopening the economy has led to a surge in people returning back to work from furlough, particularly young people in sectors like hospitality and leisure,” said Karl Handscomb, senior economist at the Resolution Foundation.
“But not everyone is back working. Over one in four older workers who were furloughed during the recent lockdown have remained parked on furlough during the reopening, and now face a higher risk of unemployment as the scheme starts to be unwound.”
As furlough numbers fall the number of people leaving their jobs will rise, said Tony Wilson, director of the Institute for Employment Studies.
But he added: “Whether that leads to a significant rise in unemployment remains to be seen.”
Given the strength of the economic recovery, the number of job vacancies being advertised, and the fall in the number of people on furlough since the beginning of the year, Mr Wilson said the number of people being made unemployed could be in the “low hundreds of thousands rather than the millions” as feared last year.
He said that by September, when the scheme ends, the number of people on full furlough “will be pretty low indeed”.