Last week, the Chancellor announced a £1,000 bonus for any furloughed staff that businesses retain. Will that be enough to prevent redundancies?
The Job Retention Bonus is the latest government measure to support businesses as the economic effects of COVID-19 continue. Announced in last week’s Summer Statement, the Job Retention Bonus will work like this:
- A one-off payment of £1,000 will be issued to UK employers for every furloughed employee that remains continuously employed through to the end of January 2021
- Employees must earn above the Lower Earnings Limit (£520 per month) on average between the end of CJRS and January 2021
- Payments will be made from February 2021
The government has set aside £9.4bn for the bonus, but some questions have arisen over its potential efficacy. Accountants share their views on how effective the bonus could be.
The bonus won’t do anything for job retention
Simon Michaels, CEO of HW Fisher Business Solutions
Personally, I don’t think it will be particularly effective. I can see why they’re doing it, but I’m not sure it’s being done in a way that will keep unemployment down. Perhaps that’s an unfair comment, but I personally think £1,000 in January, when things start to kick back in, will be insufficient to bolster the retention of staff.
What happens in February, when businesses have actually satisfied the criteria and got the bonus, will we see a mass exodus of staff in February and March? Should you be thinking about £1,000 per furloughed employee in January might be quite nice, or should you be planning for what’s right commercially for the business? Remember if you retain staff until January, it’s going to cost you money. The £1,000 isn’t going to cover anywhere near the cost that you’ve got to incur anyway. You have to do what’s commercially right.
It is a dilemma, but it will be a very short window of positivity. And of course, the employees don’t benefit from that £1,000. It’s potentially deferring the inevitable and therefore the government are going to be in a situation where at the tail-end of the first quarter/second quarter next year, we’re going to see a wave of redundancies. It’s not about longevity – it’s short-termism. And unfortunately, people need money now, not in January.
Next steps: We’re driving clients to start producing cashflows and forecasts, and to start thinking about the next 12 months, because it will be really critical for businesses. We have to do proper planning.
Verdict: It’s short-term thinking, delayed by six months, while businesses struggle with cash today.
The bonus is useful – but open to abuse
Isobel Chaplin MAAT, director and owner, IJC Finance
I have mixed feelings about the £1000 per employee CJRS bonus/grant that the government are offering in January 2021. I think it is something that will indeed help a lot of businesses to keep more staff employed for longer, but I feel that there is the potential for this bonus to be abused as well.
I imagine there will be some struggling companies who will keep staff on until the end of January, purely to receive the bonus. They may then carry out redundancies once the payments have been received. It’s potentially delaying the inevitable and runs the risk of mass redundancies across businesses in the first quarter of 2021.
I have no doubt it will genuinely help a lot of businesses with their survival in these difficult times (as it is the business benefitting from the bonus, rather than individual employees). And of course, having a job and receiving a wage when the alternative is unemployment, even if for a short while, is preferable – especially at a time of year which can be incredibly costly to households. My other fear is that it is perhaps too little an incentive to keep staff employed for businesses with cashflow needs that are critical already.
Next steps: I have been fortunate enough that my clients who had to furlough staff are getting back up to speed, so this isn’t something that we’ve had many discussions over. The focus is on managing cash in the here and now.
Verdict: The Job Retention Bonus probably will help, but there are reasons to be concerned about it.
The bonus scheme may have a purpose beyond staff retention
Paul Bulpitt, director, The Wow Company
I can’t believe that anyone will choose to retain someone now for the sake of £1,000 in February. I can’t see how this will affect anyone’s decision-making.
Perhaps it’s more designed to support big businesses – if you have 200 or 2,000 people on furlough, all of a sudden, this is quite a meaningful number. Or it could be a targeted way in which the government can pump several billion pounds into the economy, rewarding those who have taken staff back off furlough. As an incentive to not lay people off, you just have to look at the fact that the day after the Chancellor announced the initiative, thousands of jobs were lost.
The pinch point is actually the end of this month. Lots of people have started making redundancies this month because, as of August, employers start paying National Insurance. That’s going to rise in September and October, so it’s no longer a free option to have people on furlough. Even at this stage, people are making decisions about what resource they’re likely to need.
No one knows how long this is going to go on for. I’m not sure anyone wants to carry any additional resource that they don’t otherwise need. Certainly not for a £1,000 pay-out in February.
Next steps: It’s certainly a time to plan, but it’s also a time to look for innovations. Sometimes there is a better ‘normal’ to be found, rather than going back to the old ways of doing things.
Verdict: The bonus is ineffective as an incentive to retain staff, but perhaps it has another purpose.
Mark Rowland is a journalist and former editor of Accounting Technician and 20 magazine.