‘Extending the Furlough scheme until September is a double-edged sword’
Following the Chancellor of the Exchequer Rishi Sunak’s Spring Budget, businesses across the UK will continue to receive support from the government through the Furlough scheme until the end of September.
The Chancellor said there will be no change of terms. After July, businesses will be asked for a 10% contribution, rising to 20% in August and September. He also revealed that support for the self-employed will also continue until September.
Seven million people were furloughed at the end of January.
Business Leader spoke to some industry leaders on the announcement.
Sarah Coles, personal finance analyst, Hargreaves Lansdown said: “The government has learned how much damage can be done by prioritising hope over experience. After the tapering of the furlough scheme in the autumn sparked record redundancies, it’s being much more cautious this time round. It needs to be flexible too.
“This will come as a huge relief to the millions of people still utterly reliant on these schemes to make ends meet.
“The extension of the self-employment grant to those who have just submitted their first tax return will come as a huge relief. The last year has been an incredible struggle in impossible circumstances without government support beyond Universal Credit. They will finally get more of the help they so desperately need.
“However, this doesn’t help all of those excluded from government schemes. There’s no respite for self-employed people with profits of over £50,000 or who receive less than 50% of their income from self-employment, who will continue to battle on. It must seem even more unjust that the scheme is scooping up hundreds of thousands more people, and still leaving them behind.
“Both these schemes need to be flexible enough to adapt. When the government announced its roadmap, it made it clear that none of the dates were set in stone, so it’s vital the Chancellor adopts a similar level of flexibility. Last time we had an 11th hour climbdown, when redundancies were already in train. This time, we need the scheme to adapt quickly and offer clarity, to help support as many people to stay in work as possible.”
The scheme will continue at its current level until the end of June, which is 9 days after the date the government has pencilled in for the economy opening up again.
It will pay 80% of wages for those involved in the scheme, up to £2,500 a month.
Then, the government will start tapering the scheme, to cover 70% of wages in July and 60% in August and September (with firms topping up to 80%).
The self-employment grants
The fourth self-employment grant will stay at the current level February-April – offering up to 80% of trading profits or £7,500 over three months.
For the fifth grant, people whose turnover has fallen by 30% or more will continue to get 80% of average profits, those whose turnover has fallen less than 30% will receive a 30% grant.
Gordon McLellan, Commercial Director of HR Inspire comments: “Extending the Furlough scheme until September is a double-edged sword. The scheme will continue to be a great support to help protect the economy, businesses and jobs but long term it is likely to leave businesses feeling obliged and believe they need to keep their people structures and headcount in place due to the Furlough support and the Government’s employment push. However, all businesses know their current market challenges and the risks of a slow market recovery and must start to act now to prepare their business and to stabilise for the next 12 to 24 months. The dream of an avalanche of spending is in my opinion only going to happen in the hospitality and retail areas for the Summer.”
Paul Naha-Biswas, CEO and Founder at recruitment tech platform Sixley said: “The extension of the furlough scheme is very welcome, but it is ultimately a short-term solution as we all adjust to the fundamental structural changes to our economy caused by the pandemic. If the Chancellor is committed to preventing unemployment tipping over five million, then he must act now to ensure the workers impacted by these changes are not left behind. This means providing back-to-work help as the furlough scheme winds down, along with training in digital skills and a more even spread of demand and supply-side support across the economy.
“Lockdown has changed consumer behaviour for the foreseeable, with shoppers now prioritising digital and online services. A similar trend occurred in the 2008 financial crash, leading to the rise of digital-first brands like Spotify and Uber. We’re all praying for a fast bounce-back from the COVID-19 pandemic, but we need to appreciate that not all sectors of the economy will recover evenly.”
James Mcleod, VP EMEA, Faethm said: “The extension of the furlough scheme into the summer poses as many questions as it answers. Yes, it will continue to provide critical stimulus for the economy, but it remains a short-term lifeline for businesses. Questions around the long-term impact of the pandemic on unemployment remain unanswered. How will the government ensure jobs remain for those who have been furloughed? How do we ensure returning workers have the skills required to fulfil these roles? Or to generally remain employable?
“The Chancellor has emphasised that the government is ‘throwing absolutely everything’ at the problem of unemployment, but tackling the source of the problem – skills – rather than working around it, is the solution. That means supporting and incentivising businesses to reduce redundancies, and invest in new skills, to keep individuals in employment. Digital displacement is a potential risk for many furloughed employees, with many businesses having invested in intelligent technologies such as AI and automation during the pandemic to reduce costs. Employers must be encouraged to protect their staff’s employment status and enhance their long-term employability to prevent current levels of unemployment from persisting or growing in the long-term.
“Every employee has transferable skills, and the government is missing an opportunity. It must consider further targeted investments that encourage businesses to retain furloughed staff, retrain them in essential digital skills and competencies, and redeploy them in more in-demand roles where they can offer longer-term benefits and growth opportunities. That way business can add capacity and increase productivity while still making financially beneficial and morally responsible decisions, and creating a digitally adept workforce for the future. All of which will help the government deliver positive economic growth, one of its key goals.”
Darren Upson, VP Small Business Europe at Soldo, said: “For many small and medium-sized businesses the extension of the furlough scheme is a welcomed relief, having served as a means of allowing SMBs to continue to grow over the last year. While it’s continuation will help business expansion, this will need to be supplemented with leaders having better visibility of what is happening in their organisations – especially on the money leaving – if they are to manage the continued challenges ahead.
“We also have the furlough scheme to thank for keeping unemployment in check. While it is worrying to see unemployment on the rise, we are certainly not seeing a realisation of the nightmare scenario one might expect from the dramatic government interventions. This scheme has allowed many small businesses to go into a necessary hibernation, ready to return when the economy reopens. We hope that its extension will mean we can avoid a sudden surge in unemployment once it is eventually wound down. This would almost certainly have been the case without this extension.”
Musab Hemsi, Partner at specialist HR and employment lawyers LexLeyton said: “This package had to transform a blurry picture of the public finances into a clear, sensible and practical outlook for financial support as the recovery from Covid-19 begins in earnest. While the Chancellor may not have provided complete clarity for the next year, business leaders will welcome the package announced today. It goes some way to shed light on the outlook for businesses that are sustainable in the long run.
“The extension of the furlough scheme is one of the standout elements of the Budget and should bridge the gap between the end of the scheme and the return to work of a majority of the population. It was inevitable there would be some form of tapering off as the furlough scheme winds down. Employers remain responsible for National Insurance and pension contributions for hours not worked, resulting in an often significant outlay for businesses across many industries where the Covid measures have not permitted any real recovery yet. Businesses will be hoping to open as soon as possible to start generating revenue that will counteract their increasing overheads and tax commitments as the scheme draws closer to its end.
“Employers will need to prepare for the end of the furlough scheme in good time, particularly bearing in mind the statutory time periods for collective consultation in the event of large-scale redundancies. In the details of the ‘winding down’ of the scheme, we hope to see a continuation and extension of the scheme’s flexibility. In particular, re-introduction of the scope of furlough to include individuals working their notice would be a significant benefit to employers, with so many workers moving jobs. Flexibility is essential to help businesses plan their own recovery.”
How to support furlough staff?
Danni Rush, Chief Customer Officer at Virgin Incentives for advice on how business can keep existing and furloughed staff engaged: “Furlough has been a crucial support for many employers and employees, and will continue to offer an important economic lifeline as we hopefully emerge from the grips of the worst of the pandemic soon. However, it may have also unfortunately led to a stagnant labour market – with furloughed workers left in limbo, unsure whether to stick with their current employer or twist.
“With unemployment reaching 5% at the end of 2020 – a four-year high – employees still in full time work may be more hesitant to seek new job opportunities elsewhere, preferring the job security at their current employer even if they’re unhappy in their role rather than facing a competitive jobs market.
“This is a new conundrum almost unique to the pandemic economy, which employers must tackle – and HR departments offer the best possible way to overcome the challenge. For furloughed staff, employers must continue to maintain open and regular lines of communication to ensure they feel engaged with the business and aren’t tempted to look elsewhere. This may be as simple as an email or a call to check in on them and their wellbeing, or a regular company newsletter to keep them up to date with the latest company developments. Alternatively, some businesses may wish to offer furloughed employees bespoke financial support or gifts to show their support – for example, a hamper of treats. Doing so can also help to ensure furlough staff look forward to eventually returning to work and are motivated to contribute when they are finally reintegrated to the workforce.
“For retaining those staff members who are still working, employers could consider part time furlough as a compromise to help keep people working if financially viable. Additionally, employers should explore wellbeing support for mental health which has understandably suffered as a result of the ongoing social restrictions. This could start with creating an ‘open door’ policy both in the workplace and virtually, and could include access to an independent, free 24/7 Employee Assistance Programme (EAP). Businesses may also consider enhancing their employee offering by bolstering their suite of staff rewards and incentives. For example, by offering team treats or recognising achievements with financial or non-financial bonuses, including an experience to look forward to or a gift card for the employee to choose from a range of flexible options.”