Unemployment could rocket next month when furlough is scrapped – with 660,000 workers set to still need the jobs lifeline, analysts have warned.

The New Economics Foundation think tank urges the Government to “roll back the increase in employer contributions” which took effect this month and extend furlough beyond September, when it is due to be axed.

The Treasury last week said between 1.1 million and 1.6 million people were still on the vital scheme.

The additional 20% employer contribution towards furlough wages from August 1 “will not be cost-effective” for about 250,000 posts, warns the NEF.

It fears “these jobs could be at-risk of becoming redundant or seeing a reduction in hours or pay”.

Chancellor Rishi Sunak and Boris Johnson are pressing ahead with winding up the furlough scheme (

Image:

POOL/AFP via Getty Images)

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Modelling “produced a core estimate of 660,000 jobs still requiring the furlough scheme in September, but demand could range from 450,000 to 1.1m jobs”, says the think tank.

It calls on the Government to “extend the scheme and redesign it as a new, permanent, short time working scheme for employers to furlough employees in response to future shocks” to the economy.

NEF senior researcher Alex Chapman said: “The current end date for the furlough scheme is arbitrary and can cause unnecessary harm to thousands of workers across the UK, by risking unemployment or facing a reduction in pay.

“Our analysis highlights that demand will remain suppressed because of voluntary measures that the public will take in response to the uncertainty around the Delta (Indian) variant.

“The furlough scheme has been a necessary lifeline for millions of workers, and we strongly urge the Chancellor to retain it beyond September.

“Over time, similar to some of our European neighbours, a more permanent furlough scheme should be introduced that can help the British workforce build resiliency against future economic shocks such as climate disruption, trade realignment and other public health emergencies.”

Shadow Chief Secretary to the Treasury Bridget Phillipson said: "This report lays bare the Government’s failure to think ahead and secure a proper recovery in sectors which have taken a lasting hit from the pandemic.

"In many sectors — from aviation to nightclubs — business isn’t back to normal but the Government’s sink or swim attitude is putting jobs and livelihoods at risk."

A Government spokesman said: “We deliberately went long with our support to provide certainty to people and businesses over the summer and that support, which is a substantial amount of funding, is continuing.

“The furlough scheme has already protected 11.6m jobs and is in place until the end of September.

“Eligible businesses in the tourism industry will also continue to benefit from a reduced rate of VAT until March 2022 and businesses can also continue to access other support including our Recovery Loan scheme.”