The UK has furlough for longer, and business support organisations are cheered

One of the government’s boldest and most effective interventions during the Corona Virus has been the Coronavirus Job Retention Scheme (‘furlough’ scheme).

It is also, undoubtedly, one of the most important for businesses, helping them retain many of their people. A survey undertaken by Business West revealed that the furloughing scheme is seen as the most valuable and relevant intervention for the largest number of businesses. Government says it has supported 7.5 million workers and a million businesses and employers.

From the government’s perspective it is also highly effective on another level: that of fairness and politics.

The Coventry and Warwickshire Chamber of Commerce believes companies – and their staff – will be “breathing a huge sigh of relief”.

Sunak has announced the Government will continue to support businesses with 80 per cent of funding for furloughed staff up to £2,500 through to the end of July but companies will contribute more from August onwards.

The scheme will also be altered to allow firms to bring staff back to work on a part-time furlough scheme.

Louse Bennett, chief executive of the Coventry and Warwickshire Chamber of Commerce, said: “The Job Retention Scheme has undoubtedly saved many businesses and prevented a much larger number of job losses.

“Of course, businesses are still facing the most difficult challenge to hit our economy in our lifetime – and as a country, we will have to pay back this money at some point – but this will give them further breathing space as we begin to ease back to business over the coming weeks and months.

Matt Griffith, Director of Policy at Business West, said that furloughing has targeted support directly at people at the brunt of the crisis – workers who can have their jobs and incomes protected and relieved financial stress from businesses’ balance sheets. At a family level, it has kept breadwinners safe and secure.

However, the question for very successful government interventions is always – how will it end?

Matt said: "As we move to lifting restrictions on movement and the re-emergence of economic activity, the critical question is how the benefits of furloughing can be matched with the pressures of recovery. It’s probably fair to say that the phase out of furloughing will be one of the most important issues for the government’s future recovery strategy."

Because the success of furlough creates a problem. It's very expensive for the tax payer, and the tax payer is rightly looking to reduce that cost as soon as is practicable.

The second problem with its success, is less obvious, but is just as critical, added Matt.

"In previous recessions, labour would have been one of the costs that businesses shed early in the downturn. However this time labour has been retained – which is excellent news for the economy, but it means recovering firms still have the labour costs of a full workforce to meet. If these fall due too soon, before a business has earnt the income it needs to refresh its cash balances, then the risk is that many firms will be tipped into a cash flow crisis, as the monthly wage bill outweighs the green shoots of recovery."

Mishandling a withdrawal of furloughing support therefore risks both a sharp spike in unemployment and of firms getting into difficulties, he added.

Between August and October, there will be alterations, but these will remain consistent across all sectors and regions. Importantly the Chancellor said there will be greater flexibility for companies – to bring furloughed employees back to work part time whilst continuing to receive furlough payments.

However the Chancellor stated that employers would have to “share costs” with the government of salaries. Furloughed workers would have the same level of overall support – at 80% of wages - but this would be shared, presumably with companies taking a higher level of costs themselves.

The exact details will not be outlined until the end of May, but these will be critical to many companies and the shape of economic recovery.

Matt said: "Clearly the balance of costs will have a potentially big impact on firm incentives to retain workers, or, negatively, to be forced to potentially make people redundant. This will depend on their overall financial position - and critically on their ability to trade and the health of the wider economy. For sectors that may still be under some form of lockdown in August to October, such as food and drink, tourism and culture, this could risk significant job losses.

"On balance the Chancellor has taken the right course, signalling the future withdrawal of support, but proceeding slowly, and allowing greater flexibility to bring workers back into the business, as businesses gear back up to full operations. But much depends on confidence and overall economic demand to help us all get back to work, and at the least overall cost to the economy."

British Chambers of Commerce Director General Adam Marshall said: “The Chancellor is once again listening to what we’ve been saying, and the changes planned will help businesses bring their people back to work through the introduction of a part-time furlough scheme. We will engage with the Treasury and HMRC on the detail to ensure that this gives companies the flexibility they need to reopen safely."

Mike Jackson, Entrepreneur Success Director, Tech Nation, said: “Many collaborative tech projects have sprung up in response to the pandemic. And many tech companies have been crucial to help us navigate the coronavirus, from homeworking solutions to healthtech.

“We therefore welcome the Chancellor’s announcement to extend the furlough scheme through until October.

“This type of intervention has been invaluable to many of the UK’s tech companies who have struggled with cash flow in the immediate term and needed to rely on this measure to retain staff. According to our most recent Tech Nation survey, 38% of companies have furloughed staff, with only 6% having made staff redundant, which is significant.

“We believe this is the right move, to get the economy back on its feet. And we’re optimistic about the UK’s tech economy continuing to thrive.”