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Business activity slumps

Job scheme unable to halt sharpest payroll cuts

Rishi Sunak

Rishi Sunak: may extend job retention scheme

A widespread uptake of the government’s job retention scheme failed to prevent British companies announcing the biggest single month of payroll cuts on record, according to a new report.

Data published last week showed that the furlough scheme had prevented 374,000 redundancies in Scotland alone.

However, Sebastian Burnside, NatWest / RBS chief economist, said today that the scheme has helped reduce businesses’ cost pressures and the recovery will depend on how many avoid permanent closure.

The Chancellor Rishi Sunak has indicated the scheme may be extended beyond the end of June but at a reduced level of subsidy.

This could see it run until the end of September but at a 60% rate of subsidy, against 80% currently.

Part-time workers may also see their pay topped up.

An announcement could be made today.

The programme is due to finish at the end of June but employer groups have warned the government not to create a cliff edge that would make workers suddenly too costly for businesses, leading to big job cuts.

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Genevieve Morris, a partner at tax firm Blick Rothenberg, says that if the scheme is not extended beyond June may businesses will be left with no choice but to commence the six-week redundancy consultation.

The latest NatWest / RBS purchasing managers index reveals a collapse in business activity in April across all 12 UK regions and nations as a result of the coronavirus lockdown.

It shows Scotland, along with Northern Ireland and North East England, suffered the steepest falls.

“While business confidence has started to pick up in some areas, activity is going to be coming off a low base and the message from firms in most regions is that the recovery – when it does begin – is going to take time,” said Mr Burnside. 

“The length of time it is going to take to get back to 2019 levels of activity will depend largely on the scale of permanent business closures and the breadth of job losses.

“It’s worrying that, despite widespread uptake of the government furlough scheme, we’ve already seen the largest single-month job losses on record across each and every UK region.

“What the job retention scheme has done is to help reduce businesses’ cost pressures, as is highlighted by a drop in input prices in every region for the first time in the survey history.

The recovery – when it does begin – is going to take time

– Simon Burnside, NatWest

“Furloughing has been particularly prevalent across the accommodation and food services industries, so it’s almost no surprise to see Scotland and the South West – two areas of the UK with high concentrations of these types of businesses – recording the steepest drop in business costs.”

He added: “The PMI data help us identify the areas that have suffered the most in terms of the loss of economic output and jobs during the crisis, and in the months to come they will provide valuable insight into which areas are bouncing back the fastest – and those that have more permanent scars.”  

The index tracks the monthly change in the output of goods and services across the private sector. A reading below 50 signals contraction, and the further below the 50 level the faster the decline signalled.

As was the case in March, the decline in output of goods and services in April was the steepest in Northern Ireland, where the index slumped to a new record low of 8.3, down sharply from 29.1. 

The North East and Scotland (both 10.7) saw the next-steepest decreases in output, followed closely by the West Midlands (10.9).

At the other end of the scale, the slowest fall in business activity was registered in the North West (19.7), albeit with the rate of decline here still considerably faster than even at the depths of the global financial crisis. 

Business confidence towards future output varied greatly by region in April. Sentiment was positive in eight of the 12 areas, with optimism even improving in the five highest ranked regions, namely Wales, East of England, West Midlands, South West and South East.

Expectations were negative in Scotland, London, North East and Northern Ireland, falling to new record lows in the case of the latter two.  

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