Talk about anything you want!
What is the purpose of the government’s job retention scheme
The clue is in the name.
Individuals keep their job, businesses keep their staff and stand a chance of not going bust. We have half a chance of having an economy that doesn’t totally collapse and is able to bounce back coming out the other side of this.
It also gives people less incentive to break the lockdown. If a business can furlough their staff, it’s easier to put their business on hold. If not, they are more likely to still tell their staff to come in. As a freelancer, my first reaction to shut down and my work being cancelled was to find other work in a key worker role. If people don’t have money coming in, they won’t stay at home.
There are many businesses that are viable normally, but currently have little or no income due to there being no customers (hotels, restaurants, bricks-and-mortar retailers, travel companies, and many others).
Not many can afford to pay wages for more than a month or two when they have no income, so they’d simply be going out of business at a huge rate, resulting in massive levels of unemployment and a serious lack of services and expertise when the crisis passes.
The furlough scheme is an attempt to bridge the income gap for these companies so they don’t vanish, and to make it make sense for them to keep as many as possible of their staff employed in the meantime.
It’s such a weird question. It just bounces around and around absurdly, as if you’d asked ‘What are charities for?’ (or ‘charity’, for that matter), or ‘What are state subsidies for?’, or even, ‘What are mountain rescue teams for?’
Its not a weird question. Its a reasonable question around an unusual tactic and to take just part of it “Short terms? Longer term?” is rather important. How viable is it as an option beyond the short term?
There are then questions around should there be limits on it eg is it sustaining businesses which should be allowed to fold sooner rather than later.
You would not believe the amount of businesses that don’t have a cash reserve, perfectly profitable businesses but not the best cash flow, either because the owners / shareholders have taken the money out or because they have used it within the businesses for expansion or new equipment to replace old stuff.
I have 6 service engineers that work 8 hour days and typically bill for 6 to 7 of those hours, I work a 9 hour day doing site work and typically bill all 9 hours (not because I’m superman, because the work I do is different to theirs)
This week there has only been me in doing site work and a lad in the workshop finishing off a few repairs, between us we have billed 14 hours. We also have 2 admin people, a finance director and a service manager, normally the average of 45 hours billed per day employs everyone, pays for all the equipment, offices, workshops, warehouse, insurance, rates etc.
This weeks average billing of 2.8 hours isn’t even going to make a dent on that and that is why all but 3 of us are on furlough. The 2.8 hours a day also won’t cover the bills involved with staying open but the good people of Yorkshire need us to to help keep the water flowing plus our other key customers need us there (I spent 1.5 hours in a food factory today) so to do our bit we are making up the shortfall out of our cash reserve. The 2.8 hour average this week doesn’t cover the extra 20% wage that we are paying our people, again we are paying this from the cash reserve.
Now I am in a very fortunate position, I’m sitting on a reserve that is about 1/4 to 1/3rd of our annual turnover, most businesses don’t have this.
With the furlough in place for me it means though I won’t make a profit I will still have enough working capital to not worry about things (it will probably knock me back about 5 years to when I put a 50% deposit down on our offices, workshop and warehouse).
For less fortunate companies the furlough will mean they can carry on employing people but they are going to struggle and be very careful for the next few years.
A few companies will still go under but money paid out now reduces the money that will be paid out if 50% of the population is unemployed, What do you think will happen if all those little companies like mine that are vital to the infrastructure of the country are suddenly put out of business? The big bonus grab the headlines but its us little people that are maintaining all the machinery that makes the country run.
What would happen if they didn’t do it?
The best example of what would happen if they didn’t do it is to look to the USA. Their unemployment figures have risen by over 20,000,000 since the beginning of march, bringing the unemployment rate from 3.5% to approx 13.5%
The USA strategy has been to give money to individuals directly rather than via companies as here. Those companies in USA having laid off workers permanently have largely gone; ours so far, are still there to fight on (albeit probably weaker) another day. So much for getting america back to work!
This has got me revisiting the Coylumbridge Hotel sackings …
‘Administration Error’ my left buttock!
Thanks all, some good points there. The reason I ask is that I’m facing redundancy and the company is taking the view that furlough is not worthwhile. I think that’s selfish from an employee support point of view but also to the UK in general. I was keen to hear views from a variety of people about what the CJRS is actually for. There weren’t any surprises which was good. Thanks.
bad news about the redundancy; hope something works out for you.
The scheme wont protect everyone; some businesses will inevitably fail, but I think its a generally good thing; clearly it cant last indefinately, but it has bought a lot of companies a decent amount of time. How and when the scheme is wound down is going to be interesting; up here, for the likes of Nissan and therefore its supply chain, there isnt much point in reopening to produce cars until Europe is open for business, as that it where the vast majority of their sales are. Coordinating that is going to be interesting, as their wage bill is pretty significant…….
Ah, really sorry to hear that. Feels like a cold move on the company’s part. Would have thought that they could give the furlough option a crack regardless of their opinion of it. If they turn out to be right and it doesn’t help then they can always pursue redundancies then. Giving it a go would presumably have no additional financial impact for them, but a significant financial benefit for you.
Its there in an attempt to secure long term security for individual businesses. Once the lock down is over it will be business as usual (to a certain extent) and companies would suffer if they had to recruit and train new staff. It will allow companies to react quicker and stay afloat as they will be able to ‘un furlough’ experienced staff.
To use the technical term, the government’s furlough offer is about maintaining the velocity of money (VM), the volume and rate of exchange of money through the economy. Higher rates of VM are crucial for warding off recessionary forces. Keeping firms solvent and employees remunerated encourages spending and pushes VM towards an expansionary level.
Right across the spectrum of businesses, employees and the self-employed, you can see that boosting VM lies behind all the varied economic support launched this last month.
That still doesn’t explain your employer’s actions. Could it just be that they’ve made their minds up and, while there’s no additional cost in furloughing, if the poor worker can’t be productive, there’s no profit so they don’t see the point? They just want a cut in headcount ASAP with minimal delay or complications? It is their prerogative in times of stress and these are indeed desperate times for many firms.
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