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Furlough to Job Support – reflection on the Government’s job support schemes

With the Furlough Scheme coming to an end on 31 October, our experts Nimesh Shah, Heather Self and Richard Churchill look back on an unprecedented and once in generation package of Government support, and look ahead to what the future holds for UK jobs.

The Coronavirus Job Retention Scheme (CJRS) – known as the Furlough Scheme  – has been an extraordinary response to an exceptional situation. From the announcement on 20 March to the first claims being submitted was a matter of weeks, and the amount of support delivered has been huge – some £35bn in claims to the end of July, suggesting that the total cost to the end of October is likely to be around £50bn.  At its peak, as many as 9m jobs were furloughed, falling to around 5m by the end of July.

The Government and the Chancellor, Rishi Sunak, are to be congratulated on delivering much-needed support quickly, and with a relatively simple process. HM Revenue & Customs (HMRC) set up a separate claims portal and provided detailed guidance on how to make claims. No system is ever perfect (and the need to amend the guidance several times, often late on a Friday evening, meant that the process became more complex) but overall, this was an effective way to deliver funds quickly to businesses in severe need.

But are there lessons to be learned for the future, and will the Job Support Scheme (JSS) be different?

A big issue is the number of times the schemes have been amended. When CJRS was first introduced, it ran for three months from 1 March to 31 May, although the Chancellor acknowledged that it might need to be extended. On 12 May, an extension was announced to the end of October, with a promise of more flexibility from August. In fact, flexible furlough became possible from July, with employer contributions increasing from August to October. It was not until the Winter Economy Plan of 24 September that the JSS was announced, and the JSS itself has since been significantly amended. While it is hard to plan during a crisis, and a willingness to extend or improve the schemes is welcome, businesses do need more certainty for the medium to long term.

But are there lessons to be learned for the future, and will the Job Support Scheme be different?

Gaps in the Furlough scheme

There were tensions in the Furlough scheme. A key one was the requirement for employees to be on the payroll – and included in a PAYE submission – by 19 March 2020.  Employees who changed jobs in late February or early March were often excluded, as were many small businesses which submit an annual payroll return. A separate scheme (the Self-Employed Income Support Scheme, or SEISS) was introduced for the self-employed as an afterthought, but the conditions were different, and although the amount of support was intended to be broadly similar, many people did not qualify. The large number of individuals trading through personal service companies were entitled to very limited support (if anything) through the Furlough scheme.

A key reason for some of the harsh cut off requirements was the need to try to prevent fraud.  HMRC wanted to be able to reconcile claims to existing data, such as PAYE submissions. But despite this, HMRC’s evidence to the Public Accounts Committee suggests that they expect there to be fraudulent claims of around 5% to 10% of the total – up to £3.5bn, which would pay for free school meals several times over. HMRC have said they will investigate fraud vigorously, but it is to be hoped that HMRC will recognise that there is a significant difference between a fraudulent claim and someone who makes an innocent mistake in a complex calculation.

The difficulty in validating claims shows that HMRC’s move towards “Making Tax Digital” still has a long way to go. If HMRC held more live data, claims could be based on current circumstances and it would be easier to interrogate suspected fraud.

The original scheme provided support to any business which put its employees on furlough, with no question as to whether the funds were really needed. If more rigorous criteria had been applied, better value for money might have been obtained for the taxpayer; on the other hand, any delay or need to provide detailed information would have meant some businesses would have collapsed for lack of funds. On balance, we think the Chancellor was right to be generous initially – but we think that the support provided in future should be more nuanced.

For the period up to the end of June, employees on furlough could not do any work at all for their employer. This caused difficulties in practice, since strictly an employer could not even ask a furloughed employee where to find information or to respond to a simple email. From July, employees were allowed to work more flexibly, and were paid as normal for the hours actually worked. Employer contributions to the furlough scheme increased gradually, with NIC and pension contributions being paid from August, and 5% and then 10% of the cost being paid in September and October.  The increasing contributions were aimed at weaning businesses off the Furlough scheme, but inevitably will have resulted in some redundancies.

A large business will only be able to claim if they can show that their turnover has decreased due to COVID

The JSS

The Furlough scheme ends on 31 October and will be replaced by the JSS. There are two versions of JSS – JSS Open and JSS Closed. The former is available to any business which is able to stay open, and where staff can work at least 20% of their usual hours. The latter applies to any business which is legally required to close.

But there is a big gap here – in certain sectors, there may be no legal requirement to close, but it may be very difficult to find work for staff to do even 20% of their normal hours. City centre sandwich shops are an obvious example, but other leisure businesses, or businesses which are part of the supply chain but are not themselves required to close, will also be hard hit. The Chancellor has said that he wants to target “viable jobs” but it is likely that many potentially good businesses will find it very hard to survive the winter.

The original version of JSS Open required employers, employees and the Government to bear one third each of the hours not worked. This imposed a high burden on employers, who would pay 55% of an employee’s salary for only 20% of hours worked – making it cheaper to employ one person full time than three part time, and probably accelerating redundancies. The changes announced on 22 October, in response to the worsening second wave, make the scheme significantly more generous, but sadly too late for some as more redundancies continue to be announced. JSS Closed is simpler, with the Government paying two thirds of total wages, and some would argue it is merely Furlough in disguise.

The JSS is also aimed much more clearly at smaller businesses. A large business (one with at least 250 employees on the payroll) will only be able to claim if they can show that their turnover has decreased due to COVID, and will also be expected not to pay out dividends or other capital payments – demonstrating a real need for continuing support. This seems a sensible precaution and is an improvement over the Furlough scheme. It is also welcome that the additional requirements will not apply to smaller businesses.

Job Retention Bonus

The final scheme which has been announced is the Job Retention Bonus, which will pay £1,000 to employers who bring back furloughed employees and keep them on the payroll from 1 November to 31 January. Unlike CJRS and JSS, the bonus can be retained by employers, but is unlikely to be a material factor in deciding whether jobs can be maintained long-term.  In our view, it would be better to scrap the bonus but commit to extending the JSS until at least June 2021, with clear criteria to continue support beyond that date if necessary. An extension could be sector specific, with the Government paying 2/3 of wages of jobs in those sectors most affected by the crisis.

The Chancellor has done well to get significant funds to business in an emergency, but lessons do need to be learned – short-term reactive measures left businesses with uncertainty and waiting for another Chancellor statement in the hope of continued survival.  With the benefit of hindsight, the Chancellor should have committed to a 12 month sector focused Furlough scheme providing up to two thirds of the employee’s wages, with the option to review the necessity of the scheme at any given time. We hope that the Chancellor will now look ahead and continue to support businesses during the longer term to support a sustained economic recovery.

Would you like to know more?

If you would like to discuss any of the above or have other queries about how you can make the right decisions for the future of your business and your income, please contact your usual Blick Rothenberg contact or one of the Partners to the right.

You can also visit our Coronavirus – Practical Guidance for businesses today Hub for our latest insights.