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UK government warned firms face job cuts 'cliff edge' after Christmas

Tom Belger
·Finance and policy reporter
·4-min read
Commuters wearing protective face coverings travel on Victoria line at rush hour in central London on September 23, 2020. - Britain on Tuesday tightened restrictions to stem a surge of coronavirus cases, ordering pubs to close early and advising people to go back to working from home to prevent a second national lockdown. (Photo by Tolga Akmen / AFP) (Photo by TOLGA AKMEN/AFP via Getty Images)
Commuters as business leaders sound the alarm over jobs. Photo: Tolga Akmen/AFP via Getty Images

Business groups have warned UK employers face a “cliff edge” as government support is cut back this winter, risking a fresh wave of job losses after Christmas.

Three leading business figures sounded the alarm over chancellor Rishi Sunak’s new job support scheme on Tuesday, with fears employers will still not be able to prevent lay-offs.

Sunak has resisted pressure to extend the job protection scheme, which saw millions of staff furloughed across the economy when the coronavirus and lockdown first hit. Last month he instead announced a new wage subsidy scheme from November, on top of a ‘job retention bonus’ for firms keeping furloughed staff.

Employers’ contributions are significantly higher under the new initiative, with organisations expected to pay more than half workers’ typical wages for only a third of their hours.

Watch: What are the new job support schemes and grants for the self-employed?

Several business and union representatives were asked by a committee of MPs on Tuesday about the generosity of the scheme and the risk of job cuts once the bonus had been paid in January.

READ MORE: UK chancellor deflects talk of tax hikes, saying jobs the ‘overwhelming focus’

Rain Newton-Smith, chief economist of the Confederation of British Industry (CBI), said the leading business group was concerned there was a “bit of cliff edge” looming after firms received the bonus.

She said the chancellor should keep the scheme under review, and consider footing more of the bill for the employer “if it is not supporting enough jobs.”

But Newton-Smith said she still expected the scheme to help support “hundreds of thousands of jobs,” and had been welcomed by some the CBI’s manufacturing and small- and medium-sized business members.

Tej Parikh, chief economist at the Institute of Directors (IoD), issued a starker warning. “A lot of businesses are going to have to make a lot of difficult decisions with this transition from the job protection scheme to a job support scheme — particularly with cashflow still weak.

“Demand hasn’t fully recovered, and obviously it’s very difficult to plan at the moment with restrictions and potential changes in restriction going ahead.”

80% of the IoD’s members said even the job retention bonus “didn’t really impact the incentives to retain workers,” suggesting the cliff edge may come even sooner.

READ MORE: Wagamama owner loses £62.2m but plans 54 more restaurants

Several business and union figures called for more support for specific hard-hit sectors in the hearing before MPs on the Treasury select committee.

UKHospitality chair Kate Nicholls, representing one of the sector’s hit hardest by the crisis, said without such measures for hospitality, the sector faced many more immediate job losses as the furlough scheme ends this month.

“This scheme unfortunately doesn’t provide enough support for those sectors of the economy that are subject to legislative restrictions, and have an inability to earn revenue at a normal level,” she warned.

“We fear that as a result...you won’t avoid the cliff edge in October, and we have got large numbers of redundancies forecast in October.”

Job losses will be “far higher” even than the 560,000 the trade body anticipated this year in a survey carried out before new restrictions were announced, including a 10pm shutdown. UKHospitality figures suggest employment in the sector has already plummeted by around 500,000 since the start of the crisis.

She said the question was now not just whether jobs were at risk, but whether businesses would survive that could employ such workers when Britain returns to a “degree of normality.”

“There’s a very real danger we will lose large chunks of the economy; in hospitality you will have insolvent businesses, businesses going into administration, and therefore that engine of growth for re-employing people will be lost for good.”

Watch: Chancellor Rishi Sunak defends the Eat Out to Help Out scheme

ONS figures suggest one in four firms in the sector feel at high risk of insolvency in the next six months, she added.

Asked about the Eat Out to Help Out scheme, she told MPs: “13 days of good trading, and they were good trading, doesn’t offset 60% losses on the year to date.”

She said it had helped firms back to breaking even but not not to solvency, and firms had now gone “further backwards.” The trade body’s analysis suggests trading is now at levels last seen at the start of July, at around 40-50% of normal revenue, and as little as 20-30% in city centres.