Furlough funds: payback time | Financial Times

Michelle K. Wallace

This is the corporate news the City should want to hear: rising revenues and a return of taxpayer funds. So good on Bunzl, a middling UK company with a big heart, for kicking off the week with a spot of cheer. The distribution company is not the first to pledge […]

This is the corporate news the City should want to hear: rising revenues and a return of taxpayer funds. So good on Bunzl, a middling UK company with a big heart, for kicking off the week with a spot of cheer.

The distribution company is not the first to pledge repayment of state-funded wages for furloughed workers. The Spectator, a weekly British magazine sympathetic to the ruling Conservative party, will also do so. Others like Bellway never took the funds in the first place. The housebuilder said it had already benefited from government schemes (though that notion did not stop rivals availing themselves of state aid). Swedish retailer Ikea also wants to repay furlough funds. 

These noble pioneers will not presage a flood. Bunzl can afford it. In these pandemic months it has delivered plenty of soaps, masks and other hygiene kit to healthcare clients — roughly two-thirds of its business — to offset its shortfall from the hospitality sector. Anyway, the repayment will weigh in at about £7m, or less than four days’ operating profit. Ikea too is in a better position than many: its UK stores were mobbed when they reopened at the beginning of this month.

Getting ahead of the game because they can is smart. Government generosity will need to be repaid. Britain’s furlough scheme will cost a net £54bn over the March to October period, accounting for more than a third of the pandemic support. Running down that debt with increased taxes and scythed spending are anathema to countries emerging from a health crisis into an economic one. Freezing public sector workers’ pay might save £4bn but would rightly trigger a backlash if applied across NHS staff. Inflation will not magic debt burdens away either.

Thus the repayment of furlough money — perhaps on some kind of sliding profit scale, much like student loans — must be one option under discussion. Other companies outside the worst-hit sectors of travel and hospitality best look sharp.

Is Bunzl in an unusual position? Or should more UK companies expect to pay back their government furlough funds? The Lex team is interested in hearing more from readers. Please tell us what you think in the comments section below.

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