What does the end of the furlough scheme really mean for UK businesses?

With the Coronavirus Job Retention Scheme (CJRS) coming to an end today, businesses across the country are wondering what the future holds for them and their staff.

In some cases, companies have been furloughing staff since the scheme was first introduced in March 2021, but for others, they have utilised it at various points since the pandemic struck.

Since March 2020 the government has paid 80% of wages up to a maximum of £2,500. These contributions have been gradually reduced and today the scheme will now come to an end.

According to Statista, as of August 14, 2021, approximately 11.6 million jobs, from 1.3 million different employers were furloughed in the United Kingdom as part of the government’s job retention scheme. The day with the most jobs furloughed at once was May 8, 2020, when 8.86 million jobs were on the job retention scheme.

The scheme, introduced in response to the economic damage caused by the pandemic, but with businesses of all sizes and in all sectors still struggling, many are asking ‘what happens now?’

As a part of this Business Leader has accumulated the views and opinions of some of the UK’s industry leaders on the matter.

Will the end of furlough lead to mass redundancies?

With today marking the end of the furlough scheme, concerns are growing that the cut off of support for businesses will only worsen the issues of rising unemployment and job vacancies. The WEF reports that 83% of organisations have accelerated digitalisation of processes and 50% have increased the automation of tasks in response to Covid-19, meaning furloughed employees may find themselves digitally displaced or lacking in the skills needed to perform their role on their return to work.

With this in mind, James McLeod, EMEA Director at Faethm AI shared his thoughts on the matter.

He said: “All eyes are fixed on how unemployment figures may change now the furlough scheme has closed. The number of furloughed employees has steadily dropped over time, which on the surface is positive news, but we can’t overlook the fact that unemployment rates have crept up at the same time, and job vacancies have recently reached an all-time high. The figures suggest that a rise in unemployment is highly likely in the UK now the support scheme is coming to an end. This could coincide with shortage of particular skills especially when you consider that many businesses impacted by the pandemic have invested in intelligent technologies such as AI and automation to reduce costs. Their introduction may precipitate the digital displacement of some furloughed employees if employers and governments don’t act to protect their employment status.

“The impact of technology on the skills needed for modern jobs, and the effects of the end of the furlough scheme, shouldn’t lead to skills shortages and mass unemployment. This is a critical juncture for the UK, and businesses need to be incentivised 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 businesses can add capacity and increase productivity, all while making financially beneficial and morally responsible decisions, and developing a digitally adept workforce for the future.”

With the end of furlough, there is great concern for many about their future employment. Rebecca Thornley-Gibson is a partner and employment law specialist at law firm DMH Stallard, and she discusses the issue around redundancies.

She comments: “Employers will have mixed feelings as they say farewell to furlough. Many employers used the financial lifeline and retained employees who are now fully utilised.  But for those employers who have realised they don’t need the same pre pandemic number of employees, hard choices will have to be made.

“Considering redundancies or alternatives such as unpaid leave and salary reductions will be on the agenda for some employers.

“Some employers have changed employment terms during the pandemic to include the ability to temporarily lay off employees in the event of work shortages.

“Placing employees on either short time working or laying them off for up to 6 weeks in a 13-week period to avoid having to make employees redundant may be more attractive than having to make employees redundant with the requirement to pay statutory redundancy and provide notice.

“However, unless the employment contract permits lay off and/or short time working with reduced or no pay, this will be difficult to achieve as it will be necessary to obtain employee consent to the changes.

“Employers will have to go through a fair redundancy process which includes consulting employees who are at risk of redundancy, ensuring there is a fair selection as to who is made redundant and considering any alternative work within the company. Depending on the numbers of employees concerned collective consultation may also be required before employers can put in place such measures.

“If redundancy is the last resort, the timing of the redundancies and the financial planning for exit payments need to be considered. With 30-day consultation periods required for 20 or more redundancies, (45 days for 100 or more redundancies), employers will no longer be able to tie in redundancy terminations with the end of furlough.

“Employers seeking to give notice within the furlough period may also be dealt a difficult hand as whilst furlough payments originally did not exclude notice pay, it is now clear that notice pay cannot be claimed as part of the furlough grant and therefore statutory redundancy pay, notice periods and accrued holiday pay need to be factored into redundancy payment costs.

“For those employees who are made redundant post furlough, they will be entitled to be given notice, which could be a payment in lieu of their notice if their employer doesn’t require them to work it, any outstanding holiday they are owed, which could be considerable if they’ve taken no holiday during furlough and if they’ve worked for at least 2 years a statutory redundancy payment.”

The view of a Dragon

Piers Linney is a former Non-Executive Director for the British Business Bank and is a champion of entrepreneurship, SMEs, technology, with personal and professional experience on all sides of the table as an entrepreneur, adviser, executive or non-executive board member, investor and lender. He is also a former cast member of BBC show Dragons’ Den. He shares his thoughts on the end of furlough.

He said: “The end of furlough marks the withdrawal of a crucial business lifeline by Government, and the next few months will pile on even more pressure on the SME community, as will the uncertainty they face due to energy costs, national insurance increases and consumer spending levels.

“Having overcome a challenging trading and economic environment in the past 18 months, SMEs are under immense pressure and the end of the furlough scheme means that many will permanently lose a trained and valued workforce. The impact is unknown, but we must do more to support SMEs, including sole traders.

“There’s a host of proactive steps that SMEs can take now which will help them on the path to full recovery – including reducing cash flow, reaching customers in new ways, finding ways to digitise operations to improve productivity, and renegotiating deals with suppliers.

“SME’s make up to 50% of the UK economy and account for 60% of private sector employment, and it’s in the national interest to support their growth. They are a national asset that should be championed and celebrated, and it’s during these periods of turmoil that we need to double down on our backing of the business community. ”

How to bring staff back to the office following furlough

With working life set to return to some semblance of normality for those returning to the office – what can those employees expect?

To find out, read Laura Kearsley, partner and solicitor specialising in employment law at Nelsons, expert analysis on what employers should do when welcoming back furloughed workers here.

Jamie Mackenzie, Director of Sodexo Engage, continues: “As the furlough scheme ends, ensuring the smooth return of employees to the workplace is integral to helping staff adapt to the ‘new normal’.

“There is no doubt that bringing employees back from furlough is a delicate process for many businesses, which will raise unique challenges for employees alike. For some, it may mark the end of employment and leave the remaining staff with possible ‘survivor’s guilt’. Open and frequent communication will be crucial for reassuring employees, and helpful in easing such guilt. Leaders at every level should endeavour to engage in regular dialogue with their team, to explain their decision-making, as well as offer employees a forum to share their anxieties. During this time, it’s crucial to consider the employees’ mental wellbeing, and provide support as needed.

“Not all departures will be tinged with negativity. The ‘Great Resignation’ also includes those on furlough, who after some time away from their role, may have concluded to move onto new pastures. It shouldn’t be a surprise if a common accord is met, and employee and employer part on good terms.

“For those returning from furlough, it may be worthwhile considering a phased reintegration. Many have been away from their roles for a year or more, so allocated time to get up to speed might be appreciated.

“Regardless of a return or a redundancy, employers must act with compassion, keeping engagement and connection afloat, during this challenging and transitional period.”

The impact of UK SMEs

With the furlough scheme ending today, Alan Thomas, UK CEO at Simply Business, one of the UK’s largest providers of small business insurance, spoke to Business Leader regarding the impact on SMEs, freelancers and the self-employed.

He comments: “The furlough scheme has been a crucial lifeline for countless small business owners, and their many more employees. At a time where the total loss to SMEs has equated to over £126.6bn – or over £22,500 each on average – it has enabled small firms to keep staff in jobs without risking the long-term future of their business.

“As we continue to ease our way back to normality, it’s encouraging that the number of employees on furlough is at its lowest level since the start of the pandemic. However, with 1.6 million people still on the scheme, it goes without saying that the end of furlough will have a huge impact on small businesses and the people they employ.

“The UK’s six million small businesses account for 33% of all employment and contribute trillions of pounds a year to the economy. The UK’s recovery depends on small businesses bouncing back – the uncertainty caused by the ending of the furlough scheme is likely to be the latest in a long line of setbacks, as self-employed people look to revive their livelihoods.

“Thankfully, small business owners have shown resilience, innovation and creativity at every stage of the pandemic – from long-term owners, to those who started up during Covid-19. Now more than ever it’s vital that we all support small businesses in what is a crucial period for their recovery.”

Impact on the UK supply chain

Hopes the end of the furlough scheme could solve the supply chain crisis may be wishful thinking according to Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.

She said: “With long queues at forecourts, gaping holes on shelves, and a million vacancies to fill, the labour crunch risks squeezing the life out of the economic recovery. That’s led to a mini flight out of sterling this week, as worries about slowing growth unfold, amid a sea of rising prices. Any hope that the end of the furlough scheme might be the magic wand to solve the supply chain crisis is likely to be wishful thinking.

“We are likely to be facing a rash of redundancies, and the increase in the number of available workers might ease some of the hiring issues, but there is likely to be a big mismatch of skills and experience between those ejected onto the jobseekers heap and the positions available.
The most recent estimates of just how many people have been on furlough come from the Business Insights and Conditions Survey, which suggested around 6% of the workforce was fully or partially furloughed at the end of August.This represents between 1.3m and 1.7m people, of which 0.3m to 0.8m were fully furloughed.

“Almost 10% of people in the arts, entertainment and recreation sectors were on the jobs support scheme, and another 16% working in other service activities like hair and beauty salons. Some stylists and set designers might be keen to switch to a more lucrative career driving trucks, with their eye on the big sign on bonuses being offered, but lorry driving is skilled work that requires an expensive licence, and there simply isn’t the testing capacity to rapidly increase the pool of qualified drivers. The long hours culture, and arduous working conditions experienced by HGV drivers in the UK are unlikely to suit many older workers, who are more likely to be on furlough than their middle aged colleagues. Jobs in the hospitality and food production industries might be a little easier to fill, but the plea from businesses for fast track visas for overseas workers indicates they are not expecting vacancies to be filled immediately by employees leaving furlough.

“Part of an economic rebound means adjusting to a new normal, and that will mean working through temporary frictions and frustrations, including some unemployment until sufficient re-skilling and re-deployment feeds through the economy. Brexit though has muddied the waters, adding an extra layer of complexity on the route to recovery, compared to economies in the European Union, where the labour crunch isn’t quite so severe.

“Last week’s forecast from the Bank of England showed that although growth is slowing, overall output is still growing back towards pre-pandemic levels. But that was before the fuel crisis took hold and if the situation worsens the direction of the recovery could go into reverse. It’s another reminder to stay properly diversified to be prepared for any inclement weather ahead.”

What do other industry leaders think about the end of furlough?

What happens next is open to conjecture from experts in a variety of different fields, but as furlough has been a constant throughout the pandemic, the UK is stepping into a new era on the road back to normality. Business Leader received the below comments on what these industry leaders believe is next for the UK.

Juliet Strong, VP Marketing EMEA at Lattice comments: “As furlough ends in the UK this week, businesses and employees face another period of uncertainty and change. The recent ONS survey of employers suggests there was no big fall in total furlough numbers over August, with between 0.3 million and 0.8 million people still completely off work. So as we reach the furlough deadline, the exact numbers of those who will become unemployed are still unknown.

“What we can be sure of though is impact on all industries. The furlough period has given many employees time to re-evaluate their job and situation. Where their jobs still exist, some employees will be eager to get back to full-time employment to regain some semblance of normality, but others will be weighing up their options, considering work/life balance, what work means to them and ultimately considering career changes.

“The new wave of employee ‘mobility’ which is already being seen, is likely to accelerate and reach new heights – either driven by necessity, as a result of furlough-end redundancies, or through employee choice.

“Some industries will fare favourably through access to a wide new talent pool, further fuelling the current hiring spike to help business recovery and growth. Other industries will naturally face a ‘great attrition’ where they struggle to hang onto skilled and experienced workers in the post-furlough world. Either way attrition is costly and disruptive to the business. All businesses need to address this head-on.

“Employee motivations for joining or staying with a company vary – but in the current climate one thing is for sure.  Employees are looking for jobs that give them a sense of meaning and purpose, where they are rewarded for their contributions, where they have flexibility, and where they can achieve their personal growth goals. The paycheque is no longer the primary motivator.

“Businesses must invest in building a culture fuelled by employee engagement, motivation and growth.  Taking steps to build a people culture that pivots on continuous two-way communication with employees, a focus on how they are feeling and investment in helping them be productive, grow and meet development goals, will identify and address potential motivation and engagement issues before they take hold. What’s more, engagement and performance are intrinsically linked, so investing in the employee and creating a strong people-first culture will ultimately also help businesses build firmer foundations for growth as we head into 2022.”

Aliya Vigor-Robertson, Co-founder of JourneyHR, comments on the end of the ‘Furlough Scheme’ or Coronavirus Job Retention Scheme: “With around 1.6 million people still furloughed at the start of August, the impact of the end of the scheme is not to be understated. However, the end of furlough support is unlikely to have a significant impact on the UK’s labour shortages. Many employees will return to their old workplaces, while others may opt for an early retirement. Vacancies are also currently clustered in certain industries, such as logistics and hospitality, meaning many will delay their return to the workplace until they can find a job that matches their skillset or wage expectations. Those willing to retrain will also need time to do so and therefore won’t contribute to a rapid influx of skilled workers.

“However, though the end of the furlough scheme will likely increase the number of jobseekers, this is not a time to panic. Businesses can attract and retain the brightest talent amid a tight job market by putting their mission statements into action to ensure their values and visions are clear. Those planning redundancies can also take steps to ensure that ‘survivor’s guilt’ or ‘sinking ship syndrome’ do not sap the morale of their remaining team members or usher in a wave of resignations. Increased mental wellbeing support and redeploying or retraining remaining team members will be vital to this.”

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