Unable to pay the price for free money

Large swathes of the economy including hospitality, clothes stores, hairdressers and salons which have not been permitted to open since before Christmas, will have to wait almost until St Patrick’s Day to open their doors, and some may not even be permitted to do so at that stage. Shockingly, for an increasing number, they are having to turn their backs on the furlough scheme and let their employees go; because they can no longer afford to access the ‘free money’.

The ending of the current restrictions will take us almost to the anniversary of the first lockdown. While, with the benefit of hindsight, we can certainly criticise various steps taken by Government throughout the pandemic, it is broadly considered that the Coronavirus Job Retention Scheme, which we have all come to know as the Furlough Scheme, has been a successful policy intervention. The scheme offered businesses an alternative to making staff redundant, providing employees with support at 80% of their previous earnings, with businesses able to reclaim the costs and, crucially, keep skilled staff on their payroll. Without its introduction we would undoubtedly be looking at mass unemployment across the UK, which would have forced families into poverty and amplified the negative social outcomes which the pandemic has brought to the most vulnerable.

When the Job Retention Scheme was first introduced in March 2020, employers did not face any additional cost for accessing the scheme. However, from August 2020, employers were required to pay National Insurance Contributions and Pension Costs. In September and then October the level of required employer contribution increased further, to the extent that the costs of using the scheme became prohibitive for many smaller businesses. The Job Retention Scheme was due to draw to a close at the end of October 2020 but, at the eleventh hour, that decision was reversed and the scheme was extended and the level of employer contribution was reduced to the levels of August 2020. The scheme was also opened up again to businesses and employees who had not previously accessed furlough. This move was extraordinarily welcome at that time, however, given the extensions of trading restrictions affecting all parts of the UK, coupled with the mounting additional costs of using the scheme, business owners have come under relentless mounting pressure. With business owners required to pay Employers National Insurance Costs, Pension Costs and, importantly, also accrue holiday pay for their workers, the ‘actual cost’ to the employer of using the scheme is generally in excess of 20%. If this scenario is left unaltered, businesses that have used up reserves, have taken on debt and are now prohibited from trading will have no choice other than to make staff redundant.

The furlough path has been uneven. It started with government bearing the burden; then the employer had to contribute, but at a time when the economy was re-opening and ‘Eat out to help out’ was reinvigorating the situation. It has twisted and turned since then but it has now reached a point where employers have no choice but to leave it, as HM Treasury has been unwilling to change tack and remove the onerous employer contribution. In these circumstances, FSB has been in solution mode, recognising the opportunity provided by the Northern Ireland Executive’s financial underspend, and responding by designing and promoting a proposal to Ministers and MLAs that could keep the 95,000 furloughed employees on the payroll and sustain the businesses in which they work.

The FSB’s Furlough Cost Support Scheme, aims to support businesses with their ongoing furlough costs, incentivising them to keep workers on their payroll until the public health situation improves. As envisaged, the scheme would see the Northern Ireland Executive pay a grant to the employing businesses, per employee retained on furlough, on a per month basis. We estimate that this scheme would cost approximately £100 million. It would see nearly 95,000 employees retain their jobs; would sustain many thousands of SMEs whose livelihoods and existence have been taken to the brink; and would secure over £1/2 billion of furlough payments into the NI economy.

While this level of funding is not insignificant, it is entirely manageable with the amount of resource spending which Stormont must undertake before the end of the financial year, or risk handing vast funds back to Treasury. The opportunity is colossal; failure to seize it would be a travesty.

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