Old Mill Updates

COVID-19: Sunak extends furlough scheme to end of March and confirms a third grant for the self-employed

The announcement today that the furlough scheme is to be extended until March offers some certainty to businesses that employment support will be available for the next five months.

On that basis, we can probably forgive this change being made only five days since the last announcement!

There have been multiple versions of the employment support schemes, but we can forgive that too, because we are going back to what was the ‘best version’ of Flexible Furlough, with employers only having to pick up the cost of pension contributions and National Insurance.

5th November 2020

Return to flexible furlough

Flexible furlough is good for business since it allows hours worked to be varied as needed, effectively enabling businesses to treat anyone as a variable cost which may be turned on or off to match demand.

Employment law always applies, so the variation still needs to be agreed with the employees, but from an employer’s perspective, flexi-furlough can give the benefits of so-called ‘zero hours’ contracts with the government protecting the employees from the downsides of such arrangements.

It now appears that the Job Support Scheme with 30% short-working, that was due to come in this month will disappear. That is probably a good thing as this didn’t really work for most businesses and take-up was likely to be small compared to furlough.

Phil Mills, Head of Food & Drink at Old Mill observes ‘For me, I think the furlough is a bit of a blunt instrument. The announcement provides much needed certainty and so I welcome the new time horizon given but I’d question whether the scheme should be universal as I’d much rather see the support given to the sectors forced to shut down such as hospitality.

‘The gamble is that we keep enough people employed so that they can return on the other side, and the company is still around to employ more people, pay tax and contribute to GDP.

‘An alternative might be targeted assistance for the sectors most in need, coupled with massive infrastructure investment to keep those let go employed in other, value adding areas of the economy.’

Job Retention Bonus shelved

It’s not entirely good news though.

With the scheme now set to run on beyond January, the Job Retention Bonus has been dropped, which was due to be £1,000 per employee kept on who had previously been subject to furlough.

The level of employer contribution is going to be subject to review in January, so we may see this gradually increase in February and March, similar to what went before in August and September with the contribution rising by 10% each month. Although we can’t at this stage predict future lockdown restrictions so perhaps it’s too early to speculate on that.

The Self-Employed Income Support Scheme (SEISS) in a nutshell

The taxable grant will cover 80% of profits for November, December and January, up to a total limit of £7,500 – paid in a single instalment. Applications will be open from 30 November for those who are eligible and have been affected by coronavirus.

The government’s original plan was for this third grant to only cover 40% of average monthly trading profits, with a limit of £3,750 in total. This was then updated to cover 55% of trading profits but has now been extended again to 80%.

A fourth grant will cover a three-month period from the start of February 2021 until the end of April, with terms to be confirmed later.

The Self-Employed Income Support grants for the current and next quarter will now be at 80%, in line with the employment scheme. However, there remains many people who will miss out on this including the newly self-employed. There also appears to be a continued lack of support for those business owners who take dividends.

So, what should businesses do with the extended flexi-furlough scheme?

Mark Neath, Head of Corporate Finance at Old Mill comments ‘For businesses that are able to carry on normally, it’s probably not relevant or necessary. For those forced to close, then it’s a sensible measure that enables workers to be temporarily laid-off and brought back when the business re-opens.

‘The decision is more complex for those businesses which fall somewhere between these two extremes, where they are still able to operate but there is some reduction in demand.

‘Here, we need to draw a distinction between a temporary drop in demand caused by the current restrictions; and a longer term effect.

‘The government is naturally anxious to avoid numerous job losses, but businesses should match their head-count to their anticipated needs. Flexible furlough does allow some breathing space to maintain a slight over-staffing and to ‘wait and see’ how demand recovers next year, but there is a difference between maintaining capacity for the bounce-back and continuing with redundant roles that are masked by the furlough grant.

‘The government is finding it difficult to withdraw emergency measures at this time, but furlough will come to an end at some point.

‘No one wants to have to let staff go in such a difficult labour market, but businesses need to be in the best possible shape to carry on when the government does pull the plug on these schemes.

‘A lean, efficient business should then grow more quickly and ultimately employ more people, than one which finds itself in the wrong place when support comes to an end.

‘Flexible furlough can be a great tool when used well, but dangerous if it becomes a dependency.’

For further information please contact your usual Old Mill adviser or click here.