The Furlough Scheme – What Next?

The Coronavirus Job Retention Scheme (The Furlough Scheme) that has run from 1 March to 31 October 2020 is unprecedented.  Thousands of businesses and employees have been reliant on government funding to survive during one of the worst global economic downturns in history.  

The scheme has been a lifeline for many businesses across the UK.  There can be no disputing that fact.  Through no fault of their own many businesses have lost practically 100% of their revenue overnight.  Without the ability for businesses to furlough employees, unemployment would already have risen to levels not seen for a generation.  

At the outset the government had to take a “broad brush” to the furlough scheme.  Big decisions had to be made quickly to shore up the economy.  Given the magnitude of the situation it was never going to get a perfect fit for every business.

Have some businesses used the furlough scheme, outside either the legal or moral frameworks?

There are numerous whistleblowing reports stating that businesses have kept employees “in work” whilst claiming under the furlough scheme.  To limit furlough fraud, HMRC have declared that they will ‘rigorously audit’ companies for up to 5 years to ensure that claims made were legitimate and within the spirit of the scheme.

Currently, the government plans to give firms 30 days to admit to deliberate non-compliance of furloughing rules.  Businesses should take the opportunity to review carefully their policies, procedures and controls around employee wages to ensure that they have “reasonable preventative procedures” in place to address risk of tax evasion.

In addition, some businesses with strong balance sheets and significant cash reserves have taken advantage of the free cash provided by the government.  For example, businesses have furloughed junior staff whilst recruiting more senior staff, taking advantage of the free money provided by government and strengthening their businesses.  Some companies have kept employees on furlough knowing full well the position will not exist in a few months’ time.  Not illegal but possibly morally at odds with the intent of the scheme?  Or the jungle drums of the capitalist business world operating as they should?

As the 31 October safety net approaches what next?  A sharp rise in unemployment as a consequence of the government’s decision to wind down the scheme is expected.

There are warnings that over half of UK businesses will be forced to lay off staff within three months after the scheme ends, according to a YouGov survey.

Thirty-five per cent of business leaders said a fifth or more of their staff could be cut after the scheme closes in October, while 21 per cent said a third or more of their staff members could be made redundant.  

The stakes are huge for the economy, government and businesses in the coming months.  Add a Brexit (no) deal into the equation and the final quarter of 2020 is expected to be extremely turbulent.