The case for a furlough extension

The furlough scheme has been the saviour of many a business and livelihood through this pandemic and is the single biggest success of government (some might say the only outright success of government) in recent times. Certainly in their response to this pandemic where on just about everything else they have been behind the curve (and Scotland). The chancellor Rishi Sunak has been hailed up to now in a way his boss can only currently envy, and enjoys popularity ratings far beyond those of any other politician in his party. Quite literally, many of the public believe they owe that man and the exchequer their jobs.

The Furlough Scheme was forecast by some to cost ￡100bn by the time it ends, indeed initial OBR estimates forecast ￡84bn. However it has since been found that the average grant taken up has been less than expected as businesses have made use of part time working and flexible furlough to bring staff back and get their businesses moving where they can. This contradicts popular perception amongst less affected voters that businesses and staff are happy to exploit furlough to the fullest, which has never been true. Businesses furlough staff, staff don’t have the choice to furlough themselves, and those same businesses earn profits through the activities of their staff. The very minute that is possible once again to do so those staff will be back working with the invisible hand of Adam Smith working at its best. Thus the latest OBR forecast is that furlough will have cost some ￡60bn by the time the scheme ends on 31st October.

It is clear that furlough has to end at some point. I’ve seen protests including lines of vehicles in parliament square and buildings turned red, appeals that furlough should continue, but I have yet to see a proposal that outlines how long this should be for and at what level should be set at. I see desperation, frustration and at attempt to throw ourselves at the mercy of government to do something, or anything. I don’t believe that is making an effective case that will resonate and is akin to hoping to hit some sort of target by shooting for the stars although I can see why taking such action FEELS good.

Our best chance is the government channels opened by our trade associations and engagement with these, co-ordinated with physical action only where it helps their cause and strengthens their case. Albeit I am ironically writing this because I don't know specifically what our associations are asking for. I get the sense they too are throwing themselves at the mercy of government and finding it hard to make the case for specific targeted help.

I myself have long debated what the answers to my own questions as regards extensions and what levels of support should be and should they be sector specific as some have outlined (which leaves events vulnerable because we are very disjointed and stand without an independent trade classification code thus uniquely unrecognised as a sector) or should it be a wholesale agreement extended to all affected businesses in the economy.

I am coming to favour the latter. Of course I would, because otherwise the events sector will be forgotten again, but also because businesses WANT their staff back at work. No business will want employees sat at home non-productive especially where they are committing to fund NI, Pensions, acquirement of holiday entitlement, a furthering of notice period, larger redundancy payments, and up to 30% of their wages as I shall argue should be the rate at which any extension leaves the employer to fund.

I am also focusing purely on furlough because the system of grants offered to hospitality are unsuitable in the main to events businesses and other sectors having been framed in a way so as to be specifically relevant for small retail and pubs/eateries. A large warehouse or factory as many events businesses require will often be outside of the ￡51k rateable value.

If there is a case for grants then they need to be discretionary which leaves their award as too much of a lottery, or again, sector specific and events are not a sector in their own right. There is NOTHING that should be more important to our sector long term after this, than establishing who we are, all that encompasses the events industry, and achieving that trade classification code for the industry. It is shameful that this has not been achieved before now and would have avoided many of the problems we currently face. Trade associations have to come together and sort this out. I cringe every time I hear the term ‘sector specific support’, because I know the fight we’ll have on our hands if any help is directed in this way.

I am relatively lucky as a business owner because I have never had to start a business. Indeed I don’t know if I could, because that does take a unique attitude to risk and a great deal of courage and confidence. I walked into a going concern and took that on, which takes a degree of skill too, but entrepreneurs and founders of businesses have an outlook that is rarely to be found in politicians and rarely to be found anywhere actually, otherwise everyone would do it, and no-one would be an employee. I am full of admiration for such people.

Often a business will be founded by spotting the viability in the market for a business, and often the UK government provides incentives to individuals to start up new businesses, and this is done via new business start-up grants and loans. There are currently over 600 different types of government funding schemes available for small business owners in the UK. Government encourage businesses to launch because they provide employment, and pay tax. They are the single biggest economic driving force of the British economy. They are worth investing in, of that there is no doubt or the grants, incentives and support for new businesses would not exist. Government understand the importance of business start ups.

It is my view that the current crisis and pandemic should see every business worst affected to think of itself as a new business ‘start-up’. I certainly feel that way about our business, and government should see every business that comes out of the other side of this as renewed. Most have been stripped down to the essentials, are lean, hungry, and eager to re-build. Those businesses with staff still on furlough have like us now we are contributing and able to make better judgement on what lies ahead, become ultra-competitive by shedding staff viewed as unnecessary immediately furlough ends, and they would need to recruit immediately upon trade resuming at anything like a normal level. This is why every day recently has seen vast redundancies. Furlough is ending, notice periods need to be served in the remaining furlough period, and firms know what they face come November. For events and exhibitions this is an extremely tricky time.

The government possibly believe that with events able to run from 1st October (as long as there are no setbacks) our businesses are therefore allowed to trade with no barriers bar the need to comply with social distancing and managing any additional risk appropriately, so the need for support is over. We are allowed to get back to business, so make those businesses push on. I believe this is the current view of treasury and a far too simplistic model which overlooks several key factors especially where events are concerned (albeit you could frame these factors in a way that was applicable to other industries)

(a)   Confidence – Any industry that functions on confidence still faces barriers to resuming trade in the short to medium term.

Organisers will be fearful that exhibitors and businesses will attend events, and remain worried about local lockdowns (with much of the Midlands on lockdown which would affect the NEC I can see why) cancelling further shows. The initial drip, drip, drip of shows being cancelled CANNOT be repeated, because our industry will not cope.

In addition exhibitors will worry whether delegates can travel. Delegates used to working from home for a prolonged period will wonder whether the time is right to venture out in their working time, and their businesses will be worried about signing off on such a trip. Confidence WILL come back, it IS coming back as evidenced by shopping and use of hospitality becoming more normalized again, but it will not be fully normalized by November. Indeed I don’t want to talk about a second wave, or the winter flu, but these have been widely discussed and are another fear factor. In which case without a full further package of government support our industry is dead in the water. I told you, I’m not going there.

(b)   Planning - Any successful event is a year in the planning. For a contractor like us we’d normally have 3 months of lead in. More if we are tendering. Deadline dates to manage health and safety can be two months. Show orders one month. We can all do it in a week, or a day in exceptional circumstances, but this does not for a great event make. There is always going to be a four month lag minimum before trade can resume adequately. Beginning 1st October with some nervousness we’ll see some organisers blaze a trail, but likely it will be February before we see any events executed with confidence and enough of them to constitute a reasonable trading environment or market for firms to operate in.

(c)    The Exhibition Calendar – There are shows that run late November, December, and January. There are not many however. With certain shows having moved from February to April (given the commitment at ExCeL to provide nightingale services if necessary until March) the normal lead-in to the busy late winter early spring season will also see activity and trading at lower levels until late spring when preparation starts in anger and businesses can write progress invoices. Any business that intends to be viable in our sector KNOWS they need to make it until February at a minimum in readiness for April preparation.

For these reasons I believe that 31st October is too soon to pull the plug on furlough and leaves too many businesses far to weak to survive through to February. I firmly believe that we should as an industry be targeting a sector specific furlough of three further months based on the above factors and with the management of the pandemic seeing cases remain low in the UK. 31st January would seem to me to be a reasonable target, realistic enough for businesses to know that though it will be hard work to survive at least there is a chance there will be a trading environment to operate in and a market in which to go out and do business. It is also a time period the chancellor understands, having initially introduced Furlough for a three month period, and then extending that for four months. Asking for an open ended or longer extension is simply unrealistic.

There is also the level of furlough that any extension should provide. In October the government will contribute 60% of any staff wages, whilst the employer is duty bound to top this up to an 80% level. I would say that a continuation of furlough where the scheme contributes to 50% of staff wages, leaving the employer to top up to 80% whilst remaining flexible for part time working would seem fair.

By November events ARE allowed to go ahead, though few will, businesses can get back to marketing and selling, planning, and firms that have pivoted cleverly into virtual events or ancillary services to those they normally supply (all firms have a duty to try everything they can) will minimise the amount of staff they need to contribute 30% towards.

I have also always noted the ongoing points the Chancellor raises about other offers of support. Bounceback loans and CBILS made available to businesses who need extra funding. Some time ago I was extremely sceptical of any reason a firm would take these out. The uncertainty was too high, sure it was government throwing money at a problem and into the economy, there was little science to it, but who borrows money without a business case as to how to pay it back, and how did you confidently make that case 3 months ago. I now feel different, and firms should be duty bound to share the future risk with the country in the months going forward now there are slivers of light and WE HAVE A DATE.

A 50% contribution seems fair and gives firms every chance, just the right level of support that rewards business that are trying, encourages those who are struggling, and could just see a few more business through the crisis. It also requires a 30% contribution from businesses, meaning any staff retained will be absolutely critical cogs in the recovery of those firms as they resume economic activity.

I DO believe the 100% government contribution, necessary though it was at the time, led to lazy decision making by uncertain firms where all staff were protected quite unnecessarily and given false hope. The redundancies of late throughout retail, hospitality and events show this is no longer the case. Businesses have drilled down to ensure efficiency upon trading resumption at expected levels. The employee retention scheme as it stands now should mean businesses are investing only in staff that they expect to retain, and an increasing contribution will ensure this is so.

In summary, we need help, but we need to help ourselves. We need the government to take some of the risk on our behalf that we could fail, but we need to mitigate some of that risk ourselves. 50/50 sounds intuitively fair.

Lastly we should put forward a strong case as to WHY furlough should be extended. Woolly arguments such as the UK exhibitions and events industry being worth ￡x to the UK economy and providing ‘y’ number of jobs, and firms won’t survive will not hold sway. The Exchequer, and HMRC understand pound notes. Which is why they provide breaks, incentives and grants for new businesses because they know the potential returns. We are now those start ups, sure we only need some jump leads, and the government should think of a furlough extension in this way.

We need a two pronged approach to justify why furlough should be extended:

(i)                 

A macro argument based on our contribution to the coffers of the Exchequer in more usual times. A ‘start up’ or ‘new business’ argument that demands funding so that we can begin to pay our way again as an industry. I can only make the micro argument.

From April until the end of October as a business it is likely we will have received approximately ￡175k of furlough funding towards staff wages, we have also received a discretionary grant of ￡25,000 (I know, lucky us). That has been the sum total of our support. Of that furlough funding some has been repaid to the government from PAYE already and now increasingly as employers NI. There is also the saving from any government funded benefits to employees who would inevitably alternatively be out of work and knock that from the total, but it starts to get way too complicated, as it would be thinking about the ensuing consumption, VAT, and the multiplier effect that all mitigate government furlough contributions.

However it is clear, the total furlough figure received by each business is NOT all cost from taxpayer coffers, it goes into circulation and a proportion returns to treasury in alternate forms. Government support is quickly recouped in part by the simple side effects derived from the very act of printing and distributing the money in the first place.

Ignoring that however, if furlough were extended until the end of January that would cost the exchequer an additional gross figure of ￡50k approximately where we are concerned and give us a much better chance of returning the business to profitability in the long term as a trading entity. 

Any business owner starting a new business knows that it going to take some time paying down the debt that has been taken on in acquiring infrastructure, premises, plant, and labour at start up. Most businesses are starting with the germ of an idea and no client base to speak of. In this instance our businesses have an established idea, a viable and proven business plan, and an existing but dormant client base. We are ahead of the curve.

Looking at past revenues should provide some guide to future revenues. I was told when I bought into the going concern I have been a part of for 20 years, that I should expect it to take 10 years to repay the investment. It was a bit less, but not a lot less.

The government has to take a similar view on the recouping of this support provided. Statistically 60% of new businesses fail in the first 3 years. The government has the chance to invest in a huge swathe of businesses without that level of risk because the viability of the businesses are established and the record of return can be easily assessed.

In the past five years we have paid ￡192k in corporation tax alone. We have paid ￡435k in Employers National Insurance. Our staff collectively have paid in excess of ￡1m in NI and Income tax. Sure they may go on and work somewhere else, but as permanently employed staff earning at a level that their training in an established industry and the one most relevant to their skills best rewards. Not likely. Zero hours, Self-employed, scrambling a living a possibility, whilst seeking to minimise the tax they pay.

Lastly there is the VAT taken on the services we provide. For every pound of spend by making the medium of events a success we encourage an increase the VAT paid to government from economic business activity in our valuable sector. We’ve been doing what we do for 30 years, we’re good at making what we do provide a return. Our VAT payments over the last five years have been ￡1.2m, although for the purposes of this exercise I’ll exclude that, because VAT is a notoriously complex tax to account for in terms of how much we actual value add, and what sum is accountable to the activities of others in our supply chain.

In any case that is a whopping ￡322k of tax paid by our business and employees PER YEAR excluding VAT and comfortably over half a million pounds a year including VAT. Set against an crudely calculated ￡250k of government support that would have been received to the end of January should furlough be extended as I have argued, and the treasury are back in the black on their investment despite the extension after just 10 months of potential trading.

The business case for investing in us as just one business in our sector is unquestionable. Ignoring the fact that our company disappearing could actually cost the treasury in the short term through provision of income support, or universal tax credits that could potentially be claimed by unoccupied former staff.

Multiply that by all the other successful businesses doing what we do or similar, with years of proven contributions to exchequer coffers. The extension of furlough should not even be a question should it be needed, and it is. Not specifically by us as we have been very financially prudent over the years, but by many many firms like us who have been less lucky, or are earlier on in their development....and furlough cannot discriminate.

The key thing is, the maths easily add up.

We are not asking for help as victims of this situation, we are asking for help as economic contributors to the wealth of the country who need either help with temporary cash flow OR to be viewed as I have argued as a new business start-up albeit one with vastly better prospects than 99% of start-ups that receive government backed grants and incentives each year. THEN we will pay the help back, quickly, and keep paying and contributing year in, year out.

(ii)               

Then there is the argument I have seen made much more effectively, though not with the clarity I would hope, perhaps the statistics are not easy to quantify or readily available. The contribution that our business makes to the fortunes of others, then multiplied across all of our successful peers.The organisers that provide the events that prove such great growth opportunities for UK businesses to meet their customers and find new ones. The knowledge that is shared at events that enable things like new medicines and treatments to be developed in the Pharmaceutical industry. New tech solutions and existing ones improved and made more relevant at technology events, and all the other benefits derived as a result of the collaborative environment created at a trade show that are lost if you don’t have the supplier chain to create these growth focused environments in future. Purely because of the year 2020 has been and those businesses have not made it through.

As (ii) cannot be quantified we can usefully ignore it however, because the numbers from (i) add up.

There are sectors that NEED a 3 month furlough extension at a minimum, some like the creative arts might need more, I only argue 3 months as being reasonable for the industry I know most about (I’m sure some would argue longer, but lets be realistic, we are getting nothing right now). These sectors economically justify such an extension as long as our events are viewed as viable operationally under the current pandemic restrictions and guidance, (and this is where our trade associations have done a great job, I believe the ‘safe secure guidance’ does exactly that, and this will only improve after the pilot events and first organised events are learned from).

We can manage, and philosophically should perhaps be able to manage with a reduced furlough contribution alongside the other measures of government support such as gvmt backed loans as well as pivoting where possible to find income where we can (although that income will never pay the bills in the way doing what we do best could).

The libertarians amongst us (don't assume I am one btw) would empathise with a need to place some emphasis on the duty of the firm to respond to the market conditions we face by taking on some risk (as you would do at start up) and responsibility for accelerating change to meet the current challenges, especially with the 6 months we have had up to now to do so.

At the same time it is the duty of government to intervene to correct market failure, and disaster relief (COVID is by any definition an economic as well as health disaster) is a straightforward market failure in the same way externalities and monopolies require intervention. I think the most free trade, non-interventionist, libertarian economic thinkers would accept that a 50% extension of furlough given the continuing uncertainty and the record of business in putting staff back to work even where furlough exists, is a price worth paying for the survival of our businesses.

Especially when we’ll all pay the support back. Probably comfortably within a year (and find me a new business start up that forecasts to do that). We will then go on to drive the economy back towards growth, increase the tax take, and do our bit to propel the country towards recovery from the terrible circumstances we've had to face.