South: End of furlough 'could mean rising insolvency numbers'

Business owners in the South and Thames Valley who are fearing the end of the furlough scheme should be acting now to give their company finances the best chance of staying on an even keel.

Garry Lee, regional chair of insolvency and restructuring trade body R3’s South and Thames Valley region, is advising employers who are concerned about meeting their wage commitments when the Coronavirus Job Retention Scheme closes on October 31 to start looking for advice now, rather than ignoring an issue that could threaten their business’s viability.

The proportion of furloughed employees’ wages that the government pays through the scheme dropped from 80% to 70% at the beginning of September and is due to fall to 60% from October 1, before it winds up altogether at the end of that month.

The imminent removal of this support will put the burden of paying staff wages wholly back on employers – and with many firms either trading at a greatly reduced level compared to before the pandemic or still not operating at all, there are fears that there could be a sharp rise in the number of companies in financial difficulty.

Garry Lee, who is an associate director in the recovery and restructuring services department at accountancy firm Smith & Williamson’s Southampton office, said: “The Coronavirus Job Retention Scheme has clearly made an existential difference to thousands of companies in the South and Thames Valley which would have undoubtedly faced financial distress had the scheme not been available.

“The support measures that were put in place were never meant to be permanent, and we could now start to see insolvency numbers rise as the true impact of the pandemic begins to become apparent.

“Despite the steps taken by the government, we’ve still seen swathes of job cuts being made by every type and size of business, while redundancy numbers are only going in one direction - and pretty quickly at that.

“More than ever, cash is going to be king in business. Knowing precisely where you are in terms of cashflow, outgoings and payment deadlines has never been more important, while communicating clearly with staff, customers and suppliers is essential.”

The Government says it has protected 9.6million jobs through the Coronavirus Job Retention Scheme.

Lee added: “Business owners in the South and Thames Valley can’t afford to put their heads in the sand.

“The challenges that we’re all going to be facing are only too clear and trying to ignore them in the hope that they’ll go away is only going to make things much worse.

“It might be that some job losses are inevitable as the extent of the issues facing a given business become clear.

“But taking early advice, rather than a ‘wait and see’ approach, will be the best way to keep them to a minimum, and could even be the difference which means the business remains viable as a going concern.

“A great deal of the work done by R3 members goes unseen and already helps to save hundreds of companies and thousands of jobs across the UK every year, both inside and outside formal insolvency processes.

“We would urge anyone in the South and Thames Valley who is concerned about the future of their business to seek advice from a qualified, regulated insolvency professional as early as possible, so that they retain access to the widest range of options for safeguarding its future and the jobs it sustains.”

Recent research by the British Chambers of Commerce found that two-thirds of British businesses had used the government's scheme since it was announced, with one in three companies having put at least 75 per cent of their workforce on furlough.

Newly published figures by the BBC show that employers planned more than 300,000 redundancies in June and July. The figures are based on forms which must be submitted to the Government by any employer planning to make more than 20 people redundant.