'£50 million bill' for businesses as government's furlough scheme winds down
The government's furlough scheme is scaled back from July 1 and, despite the four-week extension to restrictions, businesses are facing difficult decisions.
Government's furlough scheme is winding down from July 1. Image: Anastasiia Chepinska/Unsplash
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The government’s furlough scheme has helped more than 11.5 million workers from 1.3 million employers throughout the pandemic. As the UK returns to normal, around 3.4 million are still counting on it. But there’s a day of reckoning coming. On June 30, the scheme closes for new entrants.
Struggling businesses face losing even more cash or even going under as government support measures start to wind up from July 1, despite the four-week extension to restrictions meaning many hospitality businesses can’t re-open fully until July 19.
Bosses could have no choice but to lay off more staff when they are forced to pay 10 per cent towards the cost of furloughed employees and to restart paying 34 per cent business rates contributions from July 1.
Government ministers have refused to push back on this date even if businesses are closed or operating at a significantly reduced capacity because of the decision to postpone ‘Freedom Day’ from June 21 to July 19.
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Closed or seriously struggling businesses are facing a £50 million furlough scheme bill, according to new analysis by the Labour party.
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Nigel Booth, owner of The Underground in Bradford said he was “absolutely disgusted” businesses were facing these costs when they couldn’t run at capacity.
The live music venue owner told the Big Issue: “I think they [the Government] should pay business rates. Those bearing the brunt who can’t open properly should get the rest of the year free. It’s only fair. If you can’t operate your business and you’re not generating income, how are you supposed to pay these business rates?”
A government spokesperson told The Big Issue the furlough and business support packages were “amongst the most generous schemes in the world” and said other measures, including VAT cuts, would remain in place until March 2022.
The Underground has the capacity for 350 to 400 revellers but has only been able to cater for 60 people seated with table service since indoor venue restrictions eased in May.
Booth added: “It’s a nightmare trying to social distance people. We’re open at a limited capacity and it’s not paying all the bills, but it’s a case of It’s contributing towards them so when we do finally get up and running we’re not as far into debt as obviously we could be.
“If it carries on, it’s going to make it even harder to bounce back and I know we’ve had some grants but it doesn’t really cover everything.”
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At the start of lockdown in March 2020, all the staff were new so did not qualify for the government’s furlough scheme. As well as navigating social distancing and table service, Booth has had to train up new staff.
He added: “We need extra people to do table service but by the time you pay all the wages and take the stock out you’ve made nowhere near what we should have done. It costs significantly more to make less money.”
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Jack Simpson (left), owner of Hyde Park Book Club
Jack Simpson owns two venues: Eiger Music Studios and Hyde Park Book Club in Leeds, both of which are running at a quarter of their combined 400 people capacity because of social distancing restrictions. He employs around 30 people across both and currently half are either on fully or part-time on the government’s furlough scheme, which means his costs will significantly increase in July.
He told the Big Issue: “The government’s furlough scheme has never fully paid everything. It’s a real balancing act of trying to get through the next few months with everyone still on the payroll.
“Everybody understands that this is really difficult and we want to look after people in our local area and we don’t want to add to the Covid rates in Leeds, but we would have expected as things were pushed back that we would get Government support.
“The government is adding to a feeling you should stay away from venues but is providing no support.
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“The furlough contributions and the business rates coming back is starting to force venues to make difficult decisions. We will stand by our staff, but just keeping people on the payroll costs National Insurance and PAYE and accountant’s fees.
“There are some staff who will never come back and it’s cost two or three thousand pounds to keep them in the business.”
Malek Lamrani, manager of ATIK nightclub in Gloucester, said: “Having been closed for almost 16 months, we are very disappointed by the Government’s decision. The late night sector, including clubs like ours in Gloucester, urgently needs additional financial support from the Treasury. Unlike other parts of hospitality, we have not been allowed to trade. Despite the fact that we have no income coming in, we have rates to pay and furlough coming to an end. If the Government doesn’t act now, we stand to lose more of our iconic late night venues that have been at the heart of local late night economies for years.”
According to Labour, employers will have to pay on average £122.80 per furloughed employee they want to protect, which could mean they are forced to let them go. They are calling on the government to delay the increased employer contribution and also give struggling companies 100 per cent business rates relief for the rest of the year.
Ed Miliband, Shadow Business Secretary said: “Businesses have done right by our country during this crisis and the Government must do right by them. But Ministers have repeatedly failed to grasp the simple principle that public health restrictions must be matched by fair economic measures.
“A month’s delay may seem like a short time, but for businesses legally closed from trading or those hanging on by their fingertips from going under and relying on the summer season the delay is another blow. That businesses unable to reopen are being sent huge bills defies logic. Unless Ministers take action, we risk pushing more firms over the edge.”
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The research shows the hospitality and theatre industries will be disproportionately affected by the tapering away of the furlough scheme.
Kate Nicholls, CEO of UKHospitality said: “The impact of the delay, with no additional support, has certainly ramped up concerns for hospitality businesses. Venues will have had 16 months of closed and/or severely restricted trading, and many businesses and hundreds of thousands of jobs have been lost already. The additional costs of business rates bills and government furlough scheme contributions could push more firms over the edge.”
A group of hospitality, events and wedding business owners have threatened legal action against the Government in the form of a judicial review if the easing of lockdown is delayed beyond July 19.
The letter, addressed to Boris Johnson, and sent by JMW Solicitors, said: “Your announcement on 14 June requiring these industries to wait a further four weeks before they will be permitted to operate normally is a major blow made worse by the fact that other relief in aid of being removed. The situation for these industries will get even worse, with large numbers of employees likely to lose their jobs and even more businesses to go under.
“The treatment of the sector’s employees and business owners is deplorable and cannot continue. Major industries such as hospitality, weddings, events, exhibitions and travel simply cannot endure further hardship.”
A Treasury spokesman said: “Unlike the Labour Party, we set out a Plan for Jobs over a year ago and that plan is working. We deliberately went long with our support to provide certainty to people and businesses over the summer.
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“The government’s furlough scheme is in place until September and is amongst the most generous schemes in the world – already providing £65 billion of support and protecting 11.5 million jobs. The government will continue pay 70 per cent of workers’ wages over July, with businesses asked to cover just 10 per cent.
“They can also continue to access additional support, including restart grants worth up to £18,000 per business, and business rates relief and a cut to VAT – both in place until March 2022.”
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