Business leaders: extend furlough to avoid millions of job losses

The chancellor Rishi Sunak is under intense pressure this weekend to offer a massive “second wave” of financial support to businesses within weeks amid growing fears of a catastrophic early summer of spiralling unemployment and company bankruptcies.

With the government’s £40bn job-retention scheme running until the end of June, business groups and the Labour party are demanding that Sunak extend the scheme as a matter of urgency to give an essential lifeline to the UK economy.

Under the scheme – known as furloughing – the government covers 80% of the wages of workers who are staying at home and not working at all, up to a cap of £2,500 a month. So far an estimated 140,000 UK companies have opted to furlough a total of around 4 million staff.

But large and small employers have warned the Treasury that they will need to notify the government of widescale redundancies over the next fortnight if it fails to give details soon of subsidies it will offer beyond June.

Last night The Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) said that pulling the plug on the furlough subsidy too early, before the lockdown had been lifted substantially, risked a return to unemployment rates not seen since the 1930s.

Alan Lockey, head of the RSA’s Future of Work Centre, said: “There is an estimated 27% of the entire workforce on furlough, with more than 80% of workers in the hospitality sector affected. If those people were made redundant the level of unemployment would rocket to levels not seen since the Great Depression”.

Tej Parikh, chief economist at The Institute of Directors, said that the government should try to avoid a cliff-edge moment where support ended suddenly: “Getting the economy running again won’t be like flicking a switch. Even if lockdown measures were completely lifted, many firms wouldn’t expect demand to lift to normal levels immediately.

“A sharp removal of the furlough scheme at the end of June could cause significant problems for some businesses, so the government should explore how it could taper off the system in a flexible way.”

Writing in today’s Observer, the shadow business secretary, Ed Miliband, calls on Sunak to do more. “Thousands of businesses face an existential threat, with risks to hundreds of thousands of their workers and the very fabric of our high streets and communities,” he writes.

“Essential public health measures must be accompanied by economic help. The government must act urgently with a second wave of support, including, where necessary, an extension of the furlough scheme – with greater flexibility to enable part-time working – and it must look again at the gaps in current schemes.”

Miliband also says that companies that pay dividends to shareholders should not be eligible for state support. “If you’re a large multinational and plan to pay dividends to your shareholders while claiming government resources, you clearly don’t need them. Every pound that goes to them is a pound denied to an SME [small or medium-sized enterprise] for whom it can make the difference between survival or going to the wall.”

EasyJet paid £171m in dividends to shareholders last month while negotiating a £600m loan from the Treasury and the Bank of England’s emergency coronavirus fund. The airline’s founder and biggest shareholder, Sir Stelios Haji-Ioannou, received £60m of the dividend payout.

Meanwhile Tesco paid a £635m dividend while accepting a similar-sized tax break from the government’s emergency coronavirus support package.

Companies in the hard-hit hospitality sector have put more than 80% of their employees on the furlough scheme, while the average for the private sector is 27%.

Treasury sources said last night that the issue of extending the furlough scheme beyond June was under review. It is in talks with business groups to allow companies to claim support for staff returning to work part-time to prevent a “cliff-edge decision” that would otherwise force companies to make a choice between reinstating employees or make them redundant.

Make UK, the manufacturers’ trade body, has warned that firms would struggle to bring factories back to full capacity without a more flexible scheme that allowed for part-time working to be subsidised.

Government officials are, however, cautious about extending subsidies beyond June following calculations by the Office for Budget Responsibility showing that the cost will exceed £100bn this year.

The National Institute of Economic and Social Research said that the Treasury rescue schemes and extra spending by other departments were likely to send borrowing this year to in excess of £200bn, pushing the annual spending deficit above 10%.

In an open letter to the prime minister, Boris Johnson, the president of the British Chambers of Commerce, Ruby McGregor-Smith said: “Beginning with the chancellor’s budget in March, Her Majesty’s government has acted at speed and scale to deliver cash to firms on the ground through loans, grants and the job retention scheme. Government must ensure 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.”

Johnson is expected to announce an outline strategy for lifting the lockdown late this weekend. Downing Street sources said that the priority would be getting as many businesses back to work safely, but only when the number of new Covid-19 cases had fallen substantially from its present level. They denied reports that the two-metre physical distancing rule could soon be relaxed. However, new measures to force people entering Britain to go into quarantine for two weeks are likely to be announced soon.

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