When will furlough scheme for workers end?
PUBLISHED: 14:21 05 May 2020 | UPDATED: 14:21 05 May 2020
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The ability to furlough workers administered some vital pain relief for East Anglian companies. But, business editor Richard Porritt argues, suddenly withdrawing the scheme could prove fatal
As the coronavirus storm clouds gathered on the horizon, and before the prime minister announced the necessary yet draconian lockdown measures, I was chatting to a regional chief executive about how businesses would cope.
“I can’t imagine what the government could do to help us other than simple handouts,” he said. “And they have already pledged a lot of money in the Budget.”
Minutes after chancellor Rishi Sunak announced the furlough scheme on March 20 – whereby the government meets 80% of workers’ pay – we spoke again.
“Even a few days ago I could not imagine an intervention on this level. This will undoubtedly save jobs. It might mean we are not stuck in a long recession.”
The chancellor’s announcement prompted gasps in the newsroom. Nothing like this has ever happened before. And for the vast majority of anxious business leaders – frantic with worry about how they would be able to meet their wage bill each month if work dried up – it has proved to be a lifeline.
But it is now clear that lockdown will not suddenly lift. A triumphant Boris Johnson will not stride out in to Downing Street anytime soon and declare: “We have won – throw open the office doors and raise a glass of bubbles in the pub tonight Britain ... it is over.”
The country, and therefore businesses, will only emerge from this crisis safely if it is done slowly.
Some larger firms have already received advice from government about how they might start to get back to some kind of normal. Expect social distancing, masks, hand-washing stations and split shifts.
But now there are new fears.
The same CEO, who does not want to be named, said: “I’ve spoke to a lot of people in a similar situation to myself – furloughing people has saved jobs. But just because we might be able to have some people returning to the offices doesn’t mean there will be an immediate return to business as usual.
“If the government lift the scheme immediately I honestly fear all it will have achieved is delaying the blood bath.”
And here in East Anglia the greatest concern is around the £10bn hospitality and leisure industry. There remains hope that a whole season will not be lost but if it is would it be fair to lift the furlough rules for the thousands of workers in this region?
Some economists believe the furlough scheme should continue running until the end of the year – one Treasury source suggests this would cost the taxpayer in excess of £100bn.
But it might be a cost worth paying.
If once offices begin to fill up again Number 11 does decide to lift the furlough scheme we can expect a ‘W-shaped’ recession. Obviously at first most firms will try to carry on with their full pre-outbreak workforce. But in many case the previous workflow won’t return with the staff. And then there will be no choice but redundancies.
Frankly, we cannot go furlough cold turkey. Removing the remedy over a prolonged period gives businesses a much better chance of survival.
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Perhaps furloughed workers - who currently cannot carry out any duties – could instead work part-time. That would allow a slower, and safer, upscaling of staff.
Because, even though Mr Johnson has assured us we are past the peak of the Covid-19 outbreak, the economy’s most perilous moments are still to come.
Nova Fairbank, head of policy for Norfolk Chambers of Commerce, said: “The coronavirus pandemic has been a seismic shock to the Norfolk economy. It is an unprecedented situation in both scale and impact. What we now understand is that we will not be going back to “business as usual” any time soon. “We appreciate that the government has acted at speed and scale to deliver cash to firms on the ground through loans, grants and the Job Retention Scheme. However, as we all learn to live and work in a ‘new normal’ and as the restrictions ease, the threat of the virus remains. MORE: Norwich cinema could be open as early as mid-July
“Therefore, it may take more time than initially imagined to fully re-open our society and economy, and we need the government to ensure that these schemes continue to evolve to support a phased restart of the economy, enabling businesses to survive through this crisis and thrive in the future. “The fight against the virus must remain the top priority, but the planning and communication of a carefully phased approach to lifting lockdown must begin immediately if we are to harness the public health and economic benefits, both now and in the future.”
A spokesman for Suffolk Chamber of Commerce added: “Businesses will want some reassurance about continuity when deciding to re-open, this for some will mean opening gradually with a reduced number of staff, as a result, it’s key that the government support schemes continue for the foreseeable future while the lockdown is eased gently.
“Without support, many businesses may struggle to pay staff which could result in redundancies – the exact issue government is trying to avoid.”
And Chris Starkie, chief executive of New Anglia LEP added: “We estimate that 35pc of workers in Norfolk and Suffolk are currently furloughed – slightly higher than the national average. So while the scheme has been invaluable in preserving many jobs, it is not economically sustainable in the long-term. “As we come out of lockdown some businesses will be able to exit the furlough scheme more easily than others, with those in the hospitality and tourism sector needing continued support. So where a return to work is delayed, it is critical the scheme is extended.”
And expect further quantitative easing measures from the Bank of England as well. The view among many economists is that it is better to do QE that was not fully needed than none at all.
Whatever happens next there are very tough times ahead. Not every firm in the East of England will make it. Not every job will be saved.
But sensible decisions on the furlough scheme now could lessen the impact.
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