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Wednesday, October 28, 2020

What’s Next For Companies Facing The End Of Furlough?

When the British government announced the launch of their Coronavirus Job Retention scheme in March, commonly known as furlough, many companies let out a collective sigh of relief. They could now follow government guidance regarding the closure of non-vital workplaces without making staff redundant. It meant that positions could be held open and there were jobs for employees to go back to once the lockdown ended. Now, though, we are at the other end of the furlough timeline and for thousands of businesses across the country their survival is at stake.

Already, there have been reports of big businesses having to make job cuts with British Airways announcing more than 10,000 job cuts and the ONS stating that up to 76,000 more 18-24-year-olds are out of work compared to the same time period last year. Since the furlough scheme began to wind down in July, there has already been an increase in redundancies with the Institute for Employment studies saying that 380,000 redundancies had been planned from May-July this year.

Small businesses across the country have already felt the impact of social distancing measures and the fear of a second lockdown causing reductions to their customers and many are only just beginning to see a steady income after reopening. Live music venues and theatres across the country are still closed, with many creating crowdfunding schemes in an attempt to keep themselves afloat. 

Now we are again seeing the R rate consistently above 1 and local lockdowns in place with regular murmurings of a potential second national lockdown. That, combined with the ending of the furlough scheme at the end of October, means that difficult decisions are having to be made. The furlough scheme was designed to specifically avoid redundancies with the aim being that by the time the scheme ended in October, the worst of the pandemic would be over and normal business practices could resume. Unfortunately, that does not seem to be the case so employers and employees are all finding themselves asking what happens next.

So, what is the answer? The government furlough scheme cannot carry on indefinitely. There has to be an end. But is now really the best time, while infection rates are again increasing? The scheme has already been extended twice, so potentially it could be extended again if current measures don’t bring the infection rate to a manageable number. 

The answer is relatively simple. Either companies will have their employees back and carry on paying them as usual or, the more likely option, they will be forced to make redundancies. The Bank of England is predicting an optimistic 2.5 million people who will be unemployed as a result of the scheme ending, whereas the National Institute of Economic and Social Research is estimating closer to 3.5 million. That is up to 3.5 million more people who could be forced to rely on government benefit schemes which are already overstretched. 

The other possibility is that companies may choose to make use of the employee grant announced by the government in August. Employees who are kept on for at least 3 months from the end of furlough could potentially earn their employer £1000 per person at the end of January 2021. This gives employers an incentive to retain their staff and will hopefully avoid having to make redundancies if their business has returned to normal levels. 

One thing is for sure, if the furlough scheme finishes as planned at the end of October then it will mean the end for thousands of small businesses on high streets across the UK.

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