IoD Director General Jon Geldart writes about the Government's Winter Economy Plan. This article was originally published in the Daily Telegraph.
When the Prime Minister announced the latest round of restrictions, it wasn’t just the measures themselves that caused business leaders to gasp, but the length of time they might be in place – as much as six months.
With the prospect of a bleak winter ahead for companies, it was essential for the Government to quickly outline its next phase of economy support.
And there was a lot for directors to like in the Chancellor’s ‘Winter Economy Plan’. The decision to spread out loan and deferred tax repayments won’t get many headlines, but will make a big difference to businesses on the frontline.
The big question, however, was always going to surround what would replace furloughing. Enter the new Jobs Support Scheme.
The Scheme allows employers to keep workers on reduced hours (at least a third), drawing comparisons to the German ‘Kurzarbeit’ system, which has often been lauded. But there’s a big difference: under Sunak’s system, companies must top up wages above the hours employees actually work.
It’s not hard to see how, for firms on the tightest of margins, the numbers might not add up – particularly for the SMEs the Scheme is targeted at.
The Government’s gambit is that boards will factor in the Job Retention Bonus (£1,000 per furloughed employee they keep on through January) plus the prospect of redundancy, hiring and retraining costs, and conclude that the Job Support Scheme gives them just enough financial backing to keep hold of staff – which is always the in-built instinct anyway.
For some businesses, this may be enough. In fact, many of our members had already been going further on wages, topping up furlough salaries beyond the required rate. We hope that as many companies as possible take up the scheme, and know that directors across the country will be at pains to keep all their people on board.
But the blunt truth remains that the price of this scheme may be too much for many hard-pressed small firms. They can’t guarantee that at the end of six months the virus will be gone, and that they won’t simply be faced with the same costs down the line. Larger companies, better able to tap finance, may be more comfortable taking this risk, but it’s a difficult decision for leaders of any small business to make.
A notable omission, meanwhile, from the Government's plan was the failure to extend the suspension of 'wrongful trading' liability for directors.
This will create further pressure for companies to cease trading if they don't see themselves as financially viable in the coming months.
The Treasury has clearly made a judgement: it is necessary to begin the process of transition from outright job protection toward the adjustment of business to reflect the new economic realities. But if the Treasury’s underlying assumption is that the economy needs to evolve, it should go much further to support this adjustment.
The Chancellor should now put as much weight behind job creation as he has behind job protection. We should put the enterprises that have found chinks of light in a position to take on board more people, and fill the gap that’s opening up in the labour market.
To do this, we need to slash the cost of employment.
Reducing the burden of employers’ National Insurance Contributions is the place to start, whether by boosting the Employment Allowance for small firms, or lifting the threshold for payments. Action on this front can’t wait any longer, directors are already making workforce plans for the months ahead.
The Government should look to get on the front foot in other areas too. Business investment was always going to suffer in a situation like this, with so much uncertainty, and the Treasury should act to foster more positivity. Giving SMEs more tax relief for spending on digital technology is an easy win, particularly as so many look to grapple with home-working.
Another area needing attention is skills. The current working environment puts pressure not just on companies’ digital capabilities, but on their management practices too, and this is an area where the UK has long lagged behind. While the PM's speech on further education yesterday was promising, it didn't address this key area.
With its Winter Economic Plan, the Government showed that while it still wants to support many jobs and companies, the extent of this support is being reduced - with significant implications for many companies and the wider economy. If this is its approach, it needs to think carefully about how it can reduce the risk of significant collateral damage and a less certain business recovery.
Throughout this crisis, the Treasury’s greatest strength has been its flexibility and willingness to continue updating its tactics. Business leaders will hope this remains the case in the months ahead.