The Extension of Furlough for November – Will it Save Businesses?
Clive Fortis, Director at Antony Batty & Company, Asks Whether it Will Just Delay the Inevitable for Some
Just as we were preparing for the Job Support Scheme to start on 1st November it has now been announced that The Coronavirus Job Retention Scheme (the furlough scheme) has been extended for a month, with employees receiving 80% of their current salary for hours not worked.
In this article Clive Fortis summarises the details, and asks the question: ‘will it work and help save jobs and reduce corporate insolvencies or is it just ‘kicking the can down the road’? One thing is for certain: businesses will still face difficult and critical decisions over the coming weeks and months.
Furlough Scheme Details for November 2020
As before, employers small or large, commercial, charitable and non-profit, are eligible for the extended Job Retention Scheme, which will now continue for a further month from 1st November.
The details of the extended Furlough Scheme are slightly different than previously. The key points are:
- Employees will receive 80% of their current salary for hours not worked, up to a maximum of £2,500.
- Businesses will have flexibility to bring furloughed employees back to work on a part time basis or furlough them full-time.
- Businesses will only be asked to cover National Insurance and employer pension contributions which, for the average claim, will account for c.5% of total employment costs.
- Employees do not have to have been previously furloughed.
In addition, other measures have been announced with the further tightening of restrictions to help protect jobs and businesses:
- Support for businesses forced to close. Business premises which are legally forced to close are to receive grants worth up to £3,000 per month in England.
- Extension of Mortgage holidays. Mortgage payment holidays will be extended to help reassure homeowners.
- Additional support for local authorities. £1.1 billion will be provided to Local Authorities to enable them to support businesses.
As things stand, we do not know what will happen when the impending national lockdown ends. We could assume that the Furlough Scheme will end and be replaced by the Job Support Scheme, but things are very hard to predict right now. Whatever happens, the pressure on businesses will continue to grow. There are, however, conflicting initial views on how effective the Furlough scheme extension will be.
The British Chambers of Commerce and the Institute of Directors had Differing Comments to Make
The Director-General of the Institute of Directors, Jonathan Geldart, commented that:
“Reinstating Furlough is absolutely the right decision and should bring relief to many businesses.”
Meanwhile, the Director General of the British Chambers of Commerce, Adam Marshall, said that the extension of Furlough would bring:
“…some short-term relief to some firms ….. there is no getting around the fact that the new restrictions will be devastating for businesses that have done everything in their power to adapt and operate safely. This is not the end of the conversation on support.”
Perhaps these two views are best summarised by the comment that the reinstatement of Furlough will help, but probably not enough to stop thousands and thousands of businesses becoming insolvent after already suffering a catastrophic 8 months since the pandemic started.
In other words, for many businesses, it seems likely that the extension of Furlough will only delay the inevitable. As Clive Fortis says:
“These are obviously difficult times for business owners and they have extremely difficult decisions to make.
One question that needs be considered when looking at further government support is “am I delaying the inevitable and prolonging the agony?”
What can Financially Distressed Businesses do?
As licensed insolvency practitioners, out first objective is to try and save distressed businesses and turn them around. Indeed, the last survey conducted by our industry body, R3, showed that 40% of Insolvent Businesses were rescued by Insolvency Practitioners.
The sooner we are engaged, the quicker we can get to work and try to make a difference by looking at all the options that are available and working to implement measures to save businesses. Sadly, in some cases, the only option might well be liquidation, but in others turnaround can be kick-started by raising funds and implementing new strategies to see a business through until better times return. In between are the insolvency procedures represented by Administrations and Company Voluntary Arrangements, which in their different ways aim to create a breathing space for necessary restructuring to aid survival.
These are unprecedented times for businesses and people everywhere. For many businesses, income streams disappeared almost over-night because of the Coronavirus Pandemic, yet until March 2020 these were successful Companies which were profitable, and many were growing. That is where we come in. The sooner we are consulted, the more we can do to help.
Contact us at any of our offices for a free initial discussion: