Let’s take the case of the average wage earner – about £ 27,000 per annum or £ 2,250 month. The tax allowance is £12,500, so the average earner will pay income tax on 27,000 – 12,500 = 14,500. With income tax at this level set at 20%. the average earner will pay 14,500 x 20% = £ 2,900 per year.
Now, if this average earner is furloughed for 4 months, from the 1st of March to the end of June, on 80% of salary, then the new tax calcuations will be as follows:
earnings : 27,000 – (2,250 x 4 x 20%) = 25,200
income tax : 25,200 – 12,500 = 12,700 x 20% = 2,540
lost income tax : 2,900 – 2,540 = £360
The cost of paying the 80% furlough salary for 4 months will be : £ 2,250 x 4 x 80% = £ 7,200
The net effect to the country’s accounts will be the money that the government pays in salary plus the amount of tax that is not paid to the government so :
net effect : £ 7,200 + £ 360 = £ 7,560
The estimates are that 1 million people were furloughed on the first day that the scheme opened and that this could rise to 8 million. With these numbers the costs could easily be anywhere between £ 7.5 billion and £ £ 60 billion.