The furlough scheme is tapering down – what next for UK businesses?

By Nic Redfern, Finance Director, NerdWallet UK

There are more than 8 million people across the UK currently on furlough, according to government statistics. However, in the weeks ahead businesses are going to have to come to terms with the tapering down of the scheme.

On 29 May, the Chancellor Rushi Sunak announced a number of changes to the furlough scheme, which will affect how much support is on offer.

30 June is the date when the Government’s Coronavirus Job Retention Scheme (CJRS), under which employees are furloughed, will be closed to new entrants. Then, from July, employers will be able to bring staff back part-time (more on this later).

From August, employers will have to start paying national insurance and pension contributions for furloughed staff.

And 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 – the government will only pay 70% in September and 60% in October, with the employer having to make up the difference. The scheme will end on 31 October 2020.

In light of these changes, there are important questions to be answered, such as: How effective has the furlough scheme been? How can businesses adapt to the tapering down of the initiative? And what options remain for those still requiring financial support to survive the pandemic?

The success of the furlough scheme

The UK government has often stressed that it has taken ‘unprecedented action to help during this unprecedented crisis’. When it comes to supporting the private sector, the furlough scheme has been a shining example of this.

It has been the most widely-used of all the financial support schemes available – as of the start of June, 8.4 million workers were having 80% of their salaries paid for by the Government (up to the cap of £2,500 a month). This is, of course, at great expense to the Government.

It is estimated that the state has spent £15 billion in March, April and May covering the salaries of furloughed staff. By the end of the scheme, the figure is expected to reach £80 billion – that is £10 billion for each month the scheme was active.

These approximated figures show us that there are billions of pounds still yet to be paid for the initial three months of the furlough scheme. Indeed, 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.

The Government must prioritise getting up to date with furlough payments to employers; businesses with many members of staff on furlough will not only be feeling the strain if they are not being reimbursed for their salaries, but they will also struggle to understand the real financial health of the business when some supports are yet to be issued.

Preparing for the winding down of the scheme

With the furlough scheme about to undergo some significant changes, many businesses will need to adjust their plans. This might include seeking other forms of financial support, which I will come onto shortly, or it might mean transitioning furloughed members of staff back into work.

To that end, the part-time furlough option, which comes into effect from the start of July, may interest some employers.

Here is a simplified example of how it might 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).

There are various advantages to this approach. For the business, they can steadily bolster their workforce without bearing the full brunt of their usual salary expenditure. For the employee, they can resume working in a gradual way while also earning more money. And for both, it acts as a convenient steppingstone between being on furlough and working full-time.

What support remains?

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.

However, even bringing staff back on part-time basis will be out of the question for some businesses. What’s more, with this critical form of financial support tapering down to an eventual end in five months’ time, they might be anxiously requiring help from elsewhere.

The important thing to remember is that there remain many options available for businesses requiring financial support. Here are a few options to look out for.

The Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce-Back Loans initiatives are both still operational. The Government is also providing a Small Business Grant Fund (SBGF) to businesses that already receive Small Business Rates Relief (SBRR) or Rural Rates Relief (RRR).

There are other changes worth bearing in mind, which could lessen the financial burden on businesses. For example, VAT payments due between 20 March and 30 June 2020 can be deferred, while any Income Tax Self-Assessment payments that are due by 31 July 2020 can be delayed until 31 January 2021.

Each business will need to assess how viable or useful each option is based on their circumstances. Nevertheless, it is positive to note that there are various avenues to explore.