274,720 jobs are at risk of being lost following the end of the furlough scheme, according to new analysis by insolvency score Red Flag Alert.
The firm’s most recent data shows that 26% of the 741,285 companies making claims under the Coronavirus Job Retention Scheme (CJRS) are showing signs of extremely poor financial performance. This means 193,721 companies are vulnerable to the risk of going out of business, with 12,600 of these failing within six months of furlough ending and leaving almost 275,000 people unemployed.
Analysis by Red Flag Alert, which has been collecting and measuring financial data of UK companies since 2004, shows these struggling companies are experiencing varying degrees of distress, with some at more imminent risk of failure.
Dr Nicola Headlam, incoming head of public sector at Red Flag Alert, explains: “A smaller number of businesses, around 5,000, which are registered under the Coronavirus Job Retention scheme are already insolvent or very close to insolvency. Realistically, come the end of September, these companies will be in a position where tens of thousands of jobs have already been lost or will disappear very quickly. Sadly, this is the very thin end of the wedge.
“There’s a much larger proportion of companies claiming furlough, which won’t be able to pay 100% of wages after 30 September. This will see a wave of cost cutting measures as many try to repair balance sheets and fight for survival and will inevitably lead to company failures and job losses in the six months after the scheme has finished. These are struggling businesses saddled with debt and without the cashflow or prospects of sufficient revenue to sustain employment and operation.”
Dr Headlam points to issues of corporate debt putting the future of a further 103,404 companies at risk, which employ 1,105,402 people. She explains: “103,404 businesses drawing on the Coronavirus Job Retention Scheme are surviving because they have access to cheap credit and Government COVID-19 support.
“These companies have a chance of bouncing back from the pandemic, but they are in a perilous position. They are reliant on flexible and extended repayment terms on their liabilities, which gives them much needed breathing space to continue to trade. If interest rates rise or job losses and insolvencies spook the organisations they owe money to, companies may find increasing pressures to settle arrears and debts.
“Such a situation may leave many of these businesses having to shed jobs to reduce overheads and keep their companies afloat. This should also act as a warning for businesses which have relaxed payment terms within their supply chain to companies widely using the furlough scheme. Decisions around the flexibility offered on payment terms should be based on data around the health of debtors.”
It’s widely expected that job losses connected to the end of furlough will mainly affect the private sector, as under the Coronavirus Job Retention Scheme, only companies not fully reliant on public sector grants can access the funding. Despite this, Dr Headlam advises the public sector to be cautious to protect services against job losses.
She concludes: “A post-pandemic recovery will require robust local economic strategies that drive productivity and prosperity across UK regions. For this to be successful, localities will need data-led strategies to counter widespread pockets of job losses. This will help mitigate a decline in skills and the socio-economic challenges stemming from unemployment. It will also help to protect public sector services against the disruption of under-resourcing amongst private-sector suppliers.”