U.K. Companies Can’t Afford to Top Up Furloughed Workers’ Pay

LONDON (Capital Markets in Africa) — A quarter of firms using the U.K. government’s furloughing plan can’t afford to take on any of the cost of paying their workers, the Institute of Directors think tank says.

Chancellor of the Exchequer Rishi Sunak has promised to announce details of how he plans to taper the program — which is currently paying 80% of the wages for 8.4 million jobs — this week. The changes are set to allow firms to bring back workers on a part-time basis, but also likely to ask them to pay a greater share of the wages.

The program has thus far cost 15 billion pounds ($18 billion), and the government’s fiscal watchdog says that it could exceed 80 billion pounds by the end of October. With the U.K. economy far from fully open, tapering in a way that doesn’t lead to a spike in unemployment is a major test for Sunak, who only took up the role in February and won plaudits for his swift action.

The IoD survey highlighted the scale of the challenge. With parts of the lockdown likely to still be in place through the summer, only around half of those using the Job Retention Scheme said they could provide 20% or more of their workers’ full-time salaries between August and October.

Meanwhile, one-third said they would bring the majority of their furloughed workers back part-time if the program allows it.

The Times reported last week that employers will be asked to pay a quarter of wages under Treasury plans, a figure that the IoD survey suggests may be out of reach for many companies.

“The ugly truth is that if there’s no money coming in the door, many firms will be forced to make difficult decisions come August,” said Jonathan Geldart, Director General of the IoD. “The government must soften the blow by introducing as much flexibility as possible into the furlough system.”

The plan is currently scheduled to run in its current form through July, before becoming more flexible and putting more of the burden on employers.

A government official said Tuesday that Sunak will close the program to new entrants, while other options include asking employers to pay workers’ national insurance and staff pension costs.

Separately, a Confederation of British Industry survey found that sentiment in the services sector plunged in the three months to May. While the job retention program has helped lower costs for businesses, headcount has dropped at the quickest rate since 2010 and will likely fall further, it said.

However, employers are beginning to feel a little more confident about their ability to hire new staff, according to another report from the Recruitment and Employment Confederation.