The UK Government has often told the public that it is taking “unprecedented action for unprecedented times”. When it comes to the private sector, the furlough scheme is a shining example of that.
Of all the financial supports introduced by the Chancellor Rishi Sunak since the start of March 2020, the furlough scheme is arguably the most critical. In fact, it is estimated that currently around 8.4 million workers are having 80% of their salaries paid for by the Government at present (up to the cap of £2,500 a month).
However, there will soon be changes to the initiative; the Coronavirus Job Retention Scheme (CJRS), under which employees are furloughed, will be revised over the coming five months before eventually ending on 31 October 2020.
How is the UK furlough scheme working so far?
The Government has spent approximately £15 billion so far in covering the salaries of furloughed staff. It is thought that the final figure when the furlough scheme is brought to a close will be £80 billion, which equates to £10 billion for every month it was active.
Yet the figures suggest that much more is due to be paid out from the opening months of the furlough scheme than has thus far been provided.
This chimes with the findings of a recent study KnowYourMoney.co.uk conducted among over 900 UK businesses. We found that as of April almost half (48%) of British companies had furloughed staff – this figure will likely be even higher now – but of those, 71% were still awaiting funds to be transferred to them from the Government.
Clearly it is of paramount importance that all furloughed salaries are brought up to date and the Government is able to deliver the cash that many businesses desperately need.
At the same time, business leaders must prepare for the next phase of the furlough scheme, with various amends being made between now and the end of October.
What are the changes to the furlough scheme?
There were a number of changes announced by the Chancellor on 29 May. Firstly, on 30 June the CJRS will close to new entrants. Then, from Wednesday 1 July, businesses using the Government’s furlough scheme will be able to bring furloughed employees back part-time.
Secondly, from August employers will have to start paying the national insurance and pension contributions of furloughed staff.
And thirdly, from September, while employees on furlough will continue to get 80% of their salary, the proportion that the state pays will be reduced each month. In September the Government’s contribution will drop to 70%, and another 10% drop will follow in October (down to 60%). Employers will need to top up the difference.
The part-time furlough option will likely be a consideration for many UK businesses. So, let us run through a simplified example of how it could work…
You have a member of staff who earns £2,000 per month and works 40 hours a week. This employee has been furloughed and you are not topping up their salary beyond the 80% offered by the Government. In July, your employee returns part-time and works 20 hours per week (half their normal amount) – they will now receive 50% of their monthly salary from you (£1,000), while the remaining 50% will be eligible via the furlough scheme (80% of it – so £800). That means your employee will now earn £1,800 per month, which is higher than the amount they would be paid if they were furloughed full-time (£1,600).
This solution could prove to be a win-win. Employers can bolster their workforce without suddenly having to pay a staff member’s full salary. The part-time employees, meanwhile, can earn more money again. And both sides can manage the transition from furlough to work more gradually.
What are the options for struggling UK businesses?
The Government’s decision to change the scheme is both to protect public finances, but also to encourage employers to re-employ staff and start actively seeking ways to boost revenue.
In truth, however, many businesses will not yet require additional part-time staff. They might not be in the financial position to do so, or they lack the work to require the extra pairs of hands.
But once the furlough scheme ends on 31 October, they will have no choice. So, what can they do to put themselves in a stronger financial position as they prepare to pay all of the employees’ full salaries again?
The important thing to remember is that there remain many options available for businesses requiring financial support.
For one, the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce-Back Loans initiatives are both still operational. Elsewhere, the Government is providing a Small Business Grant Fund (SBGF) to businesses that already receive Small Business Rates Relief (SBRR) or Rural Rates Relief (RRR).
Furthermore, it is worth remembering that any VAT payments due between 20 March and 30 June 2020 can be deferred to a later date. Also, any Income Tax Self-Assessment payments that are due by 31 July 2020 can be deferred until 31 January 2021.
Each business’ circumstances will dictate which, if any, of these options are viable. What is important is knowing that there are many different avenues to support, particularly as the furlough scheme is tapered down.
Advice available for businesses in trouble
Navigating these various options might seem daunting. But advice is available. Whether by seeking information on the constantly updated Gov.uk website, or speaking to intermediaries and experts who help businesses find financial products, it is not a process that any executive needs to go through alone.
More generally, it is important that those leading companies through this crisis remain resilient. Securing financial support is never straightforward – when seeking business loans, setbacks and rejections are likely. Businesses should not feel disheartened if this happens, but must instead rebound strongly and seek another option.
Nic Redfern is Financial Director for Know Your Money. Know Your Money is an independent financial comparison website, launched in 2004. Run by a dedicated team, Know Your Money’s goal is to provide clear, accurate and transparent comparisons for a wide range of financial products, such as business loans, mortgages and car insurance.