South: Furlough extension gets cautious welcome

In an unexpected move the chancellor has extended the current Furlough scheme until the end of October but he now has a huge challenge to get this right, says tax and advisory firm Blick Rothenberg.

Heather Self, a partner at the firm, said: “He needs to achieve a Goldilocks effect – not too hot, and not too cold. If he provides too much it will be very expensive and may discourage firms from reopening. If he provides too little thousands of people could lose their jobs.”

She added: “It is going to be a turbulent time for the labour market in the autumn. Some sectors, such as the hospitality and tourism sector, are likely to see significant redundancies, while others such as construction and financial services will be relieved to see a gradual winding-down of support.”

From the announcement today, we now know that:

• Support will be continued to the end of July in full, with employers required to contribute after that date.

• Part-time working will be permitted, but only for some employees

• The same level of overall support – 80% of wages up to a maximum of £2500 a month – will be maintained

Self said: ” As the furlough scheme is reduced the Government needs to incentivise business and come up with creative ideas about how business can keep going and retain staff.”

She added: “The chancellor could not go on paying out billions of pounds indefinitely, and everyone understands that, but there needs to be much more joined up thinking between Government and business.”

So far, some 7.5m employees have been furloughed, at a cost approaching £10 billion.  The expected costs to the end of July are likely to be around £50b, with the extension at a reduced level to the end of October perhaps costing a further £20b. These are very significant sums, amounting to around 10% of total Government receipts.

Heather Self said: “Enabling part time work is welcome, as it will permit a gradual return to work.  But the chancellor said this would only be available to businesses “currently using” the scheme – it is not clear what the cut-off date will be for businesses still considering whether they need to furlough employees.

“The chancellor needs to pay attention to the needs of different sectors, difficult though this may be. Leisure and hospitality businesses are unlikely to be able to cope with reopening fully by the end of July, and may need to contemplate redundancies.”

Mike Jackson, entrepreneur success director, Tech Nation commented: “The UK tech and founder community is one of the most collaborative in the world. 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.”