Job Support Scheme: It’s tipped the balance in favour of keeping staff for most (but not all) employers

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The new Job Support Scheme is welcome news for many small and medium-sized businesses that have been desperately trying to retain their employees through a sustained period of reduced demand. But it’s not the right solution for all.

John Foundling, corporate finance partner at accountancy firm, Menzies LLP says that for those businesses just requiring a little support to square the financial circle, the new Job Support Scheme, combined with the existing Jobs Retention Bonus Scheme, will tip the balance in favour of keeping staff rather than making redundancies. However, as the Chancellor has made clear, it won’t protect all jobs.

Before deciding whether to take advantage of the new Job Support Scheme, careful consideration is required. Those businesses that have been operating with a skeleton workforce, due to reduced demand or the impact of Covid-19 workplace restrictions, will need to weigh up carefully whether retaining all staff is the right option, given the reduced support from Government. Stretching the finances too far could put the whole business, and therefore all employees’ jobs, at risk. Business owners should review their cashflow and make sure they know where demand is coming from in the months ahead. This will enable them to take the right decisions for the long-term good of the business.

Until last week’s announcement by the Chancellor, some of the businesses most affected by the crisis, such as those in the travel and aviation sectors, event management firms and some hospitality and leisure businesses, had been heading for a cliff edge at the end of October (when the CJRS closes). For these businesses, largescale lay-offs and a rise in insolvencies has seemed inevitable for some time. While the new support package, due to take effect on 1st November, will provide a helpful bridge for many struggling businesses, it will not protect those whose business models have been rendered unviable by the pandemic.

Among the key features of the new support package, the deadline for applications to the Government’s existing loan schemes, specifically the Coronavirus Business Interruption Loans (CBILS), Future Fund Loans and Bounce Back Loans (BBLs), has been extended to the end of November, and a successor scheme will be introduced in January 2021. In addition, the new ‘Pay As You Grow’ loan payback scheme will allow businesses that have taken advantage of these loan schemes greater flexibility when planning to make repayments. For example, the maximum repayment term for CBILS loans has been extended from 6  to ten years, potentially almost halving the monthly repayment required. The Chancellor has also assured businesses that making use of the these extended repayment terms will not affect their credit rating.

From the start of November, the new wage subsidy scheme will be available. This has been modelled on the successful German ‘kurzarbeit’ model and is designed to help employers to keep people in work, albeit on reduced hours. To qualify for the scheme however, employers will need to ensure workers are being paid for at least a third of their normal working hours. Many of the worst-affected businesses feel that the bar has been set too high for this scheme and keeping staff in paid employment for a third of their normal hours is simply not possible.

For hospitality businesses that have been struggling to keep going through the pandemic, the decision to extend the cut in VAT, which is currently set at just 5% through to the end of March, is a welcome move. This will help to soften the impact of reduced demand through the winter season, so they can plan to bounce back next spring.

Overall, the new support package will give many businesses more breathing space, so they can continue to focus on generating revenues through this incredibly challenging period of economic uncertainty. To survive and thrive in the future, the key is to stay focused on demand, and adapt businesses accordingly, delivering products and services in new ways where necessary, which could mean focusing more on e-commerce, for example.

While some companies are struggling, others have seen increased demand in certain areas of their business. This new support package will allow them the breathing space required to adapt what they do and how they do it, with a post-Covid future in mind.