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Stark warning in survey

Majority of firms to cut staff when furlough ends

Graeme Roy: ‘long road ahead’ (pic: Terry Murden)

More than half of firms say they plan to make redundancies once the government’s furlough support scheme comes to an end, according to a new survey.

Of those which used the scheme, about one in eight 12% expect a “large” decrease in employees, while 43% are looking to lay off a small number of staff and 41% say they expect no change. 

The furlough scheme has supported 736,500 workers across Scotland but will begin to wind down from this weekend as firms begin paying national insurance contributions. By September they will be forced to pay 10% of wages before the scheme ends in October.

The stark warning from firms preparing to lay off staff was revealed in the latest Addleshaw Goddard Scottish Business Monitor, produced in partnership with the Fraser Of Allander Institute economic think tank.

As lockdown restrictions begin to ease and the economy starts to open back up, sentiment amongst the Scottish business community is showing some tentative signs of improvement.

However, the overall outlook remains challenging, according to the survey.

The monitor, based on responses drawn from over 500 Scottish-based businesses between 30 June and 14 July, indicates:

* the average firm expects to operate at 51-75% capacity. One in every four firms expects to operate at normal or above-normal capacity.

* Business activity is expected to rise from a record low, with a net balance of 70% of firms reporting a decrease in the first quarter of 2020 to 4% as we look ahead to the next six months. 

* The majority of firms say they plan to make redundancies once the furlough support comes to an end.  Of those who used the scheme, 12% expect a large decrease in employees and 43% a small decrease. More positively, 41% say they expect no change. 

* 61% of businesses said that their cash flow position was secure or very secure for the next six months – leaving a significant proportion of firms at risk.

* Many businesses have significantly increased their debt to get through the lockdown period, with 47% of firms saying their burden has increased as a result of the pandemic. Of those who have witnessed an increase, 41% have seen this burden increase by a large amount, 46% by a moderate amount and 13% by a small amount.

Graeme Roy, director of the Fraser of Allander Institute, said: “As we continue to emerge from the public health crisis, the economic costs of the lockdown are becoming ever clearer. This summer’s activity figures were the lowest since the survey began in 1998.

“In short, whilst the economic recovery has clearly started, it will be a long road ahead.”

David Kirchin, Head of Scotland at Addleshaw Goddard, said: “There is no doubt the economic outlook for the foreseeable future looks testing and, while activity levels are now improving, they remain challenged.” 

Call to extend furlough

Scottish Labour leader Richard Leonard said the warning from firms about cutting jobs “is a stark warning of the jobs devastation that working people in Scotland will face unless the Scottish Government introduces a quality jobs guarantee scheme now. 

“The UK government must extend the furlough scheme in sectors which are unable to return to pre-crisis trading levels.

“Just as the SNP government left Scotland unprepared for the public health and care crisis, the SNP government is still failing to prepare us for the coming economic and unemployment crisis.

Richard Leonard at Penicuik

Richard Leonard: ‘time is running out’ (pic: Terry Murden)

“Time is running out to get a quality jobs guarantee scheme in place before the furlough scheme ends. Scotland needs jobs for good, but the SNP’s failed hit and miss approach will mean that thousands more will join the dole queues and leave our economy more reliant than ever on insecure, low-paid work.”

The SNP’s Shadow Chancellor Alison Thewliss said: “The decision by the Tory government to cut the furlough scheme in the middle of the global pandemic, and ahead of a potential second wave, is dangerously premature and poses a threat to thousands of jobs across Scotland and the UK.

See also

State aid change allows more firms to access support

BGF chief calls for renewal fund to support firms

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