Long-term impact of furlough

The Government’s furlough scheme has been extended to April 2020. How will this impact on employees and are redundancies inevitable?

The impact of the Covid19 pandemic on businesses has varied. Traditional retail and leisure and hospitality businesses have suffered badly. Online retail has thrived, and technology businesses have, seemingly done well.  

Keeping employees on furlough, avoids for many what would otherwise be a redundancy situation. The income they receive, whilst less than normal, will be greater than might be received from unemployment benefit. Furlough avoids employees being faced with the stigma of unemployment, when there is perhaps little prospect of finding other work. Some employers have already looked ahead and made redundancies, particularly when they were required to contribute to the cost of the furlough scheme, and were short of cash.  

The future

The world of work will inevitably be different, technology and AI have made great strides over the past months. Many of those who are on furlough will face the risk of being made redundant when there is a return to more normal times. 
 
By the time the current scheme comes to an end furlough will have been in place for over 12 months. Some employees will have been on furlough, either fully or flexibly, throughout that time. Where employees have been flexibly furloughed it seems possible that they may be able to maintain their employment going forward, but the prospects for those who have been fully furloughed may well be more remote. If a business has survived for 12 months without them, those making employment decisions may well look for cost savings there.
 
In the early days of the pandemic having a furlough scheme seemed a prudent and sensible provision which would keep people employed, avoid mass redundancies and a potential avalanche of employment related litigation. With the passing of many months, businesses continuing to retain employees, who they would not otherwise be able to retain in the face of spiralling cost, may well wonder whether they are really needed. Can they achieve what they need with a slimmed down, more efficient, workforce? Has technology provided the solution?

Impact on the economy

On the one hand if employees are let go that will slow the recovery when it comes. There will not be, as pronounced, a “bounce”. With people out of work the ability and desire to spend will not be there.

Equally, debt levels are the highest they have been in peace time. The cost of the pandemic will be born for years to come. It will have an impact on the ability of the economy to grow, but crucially it will keep people in work, and able to return to a role, should it be there.

With a vaccination programme underway, now is not the time for the Government to “cut and run”, we have already incurred vast debt; bailing out now would almost be an admission that the policy adopted was flawed. Politically, for a Government that, 12 months ago, won an election by breaking into Labour heartlands, ceasing to support business and individuals would be unthinkable. There will inevitably be redundancies; the cost of avoiding them is high, but, equally, so is the cost of allowing a wave of redundancies to be unleashed in the midst of the ongoing pandemic.

That seems to be a view not lost of the Government, who previously tapered the benefit of the Job Retention Scheme with increased employer costs. Whilst that remains a possibility there seems little prospect of it being re-introduced quickly, given the current spike in cases and the new four tier regime, with the possibility of further areas of the country being forced into stricter lockdown rules. Johnson’s phrase, which struck a chord in the spring, “if you stick by your employees we will stick by you”, has never been more important.

If you have any questions regarding the furlough scheme or any other employment related matters, please contact Barry Stanton on [email protected]