Small businesses cut jobs as furlough scheme winds down

Almost a quarter of small UK businesses have cut jobs in the past few months despite the government’s furlough scheme that has helped pay the wages of more than 9m workers.

Larger companies have unleashed a savage round of job cuts in recent weeks, with hundreds of employees losing their jobs at household names such as Marks & Spencer, John Lewis and Dyson.

However, many of the new jobs predicted in the next year were expected in smaller businesses that are struggling to survive the economic impact of the pandemic.

According to a report by the Federation of Small Businesses (FSB), almost a quarter — 23 per cent — of companies said they had already reduced staff numbers in the last quarter — a record high for the survey. Those increasing numbers were at an all-time low of 4 per cent.

From next week, the Treasury is starting the gradual winding down of the furlough scheme, which has partly covered the wages of more than 9m workers.

From August 1, employers will need to contribute national insurance and pension contributions for furloughed staff, which will add to the burden of struggling businesses and likely prompt more to make cuts.

The latest survey comes as insolvency firm Begbies Traynor has found that the number of SMEs in financial distress has risen by 16,000 since the end of March, standing at 520,000 businesses. This has put more than 1.7m jobs under threat, according to Begbies Traynor’s Real Business Rescue service.

The number of start-ups — businesses of three years or under — in distress has risen by 18 per cent in the last quarter, which it said shows that smaller, younger businesses are most affected.

Begbies defines those in financial distress as businesses with minor county court judgments filed against them or which have been identified as such by its credit risk scoring system.

The FSB survey showed that a fifth of small companies expected performance to be “much worse” over the next three months, despite the easing of the lockdown. Three quarters said profits fell in the second quarter and the majority said they were operating below capacity. 

However, the proportion who expected prospects to be “much improved” compared to the last quarter has also risen significantly, standing at just above one in ten. The FSB surveyed 1,486 businesses at the end of June 2020. 

More than half of businesses expected their performance to remain stable or worsen over the next three months, with most of the remainder expecting a relative improvement as lockdown restrictions lift.

Those in the construction, accommodation and food service sectors are among the most confident about a relative uplift in performance.

Mike Cherry, FSB national chairman, said: “We urgently need to see the Treasury outline how it intends to support those who have been left out, not least company directors and the newly self-employed. Additional help for those who are being forced to stay closed while others reopen is also a must.”

His appeal was echoed on Sunday by Sadiq Khan, the London mayor, who warned that many jobs were at stake in the capital unless the furlough scheme is extended.

“For sectors such as creative industries and hospitality it is still too early for many businesses to pick up the cost of national insurance and pension contributions – I am deeply concerned this will simply accelerate a surge in unemployment in businesses already struggling to cover their costs,” he said.

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