Following recent speculation, it was formally confirmed in yesterday’s Budget that the furlough scheme will be extended until September this year.
The current scheme pays 80% of employees’ wages for the hours they cannot work as a result of the pandemic, and this is set to continue for the next seven months. However, the extension brings with it some changes for employers, requiring them to pay 10% towards the hours their staff do not work in July, and 20% in August and September.
Looking back, it seems almost unbelievable that this time last year “furlough” was a term most of us had never come across before. Apart from becoming part of the general lexicon, the impact of the furlough scheme has been enormous. Official statistics indicate more than 11 million jobs have been protected by the scheme since it was introduced.
The government has extended the scheme a few times now, each time seemingly to prevent a much-dreaded ‘cliff-edge’ effect for business. Withdrawal of the scheme, it is feared, could precipitate a domino effect with job losses, cashflow problems and contractual performance issues. So here we are again; another extension and another cliff-edge avoided, but the scheme has to come to an end sometime, and so is this merely a case of kicking the proverbial can down the road until September? Will it be extended again? For now the plan appears to be to aim for a soft(er) landing; if all goes to plan, come 30 September we will have all been enjoying some semblance of the ‘old normal’, (by way of pubs, restaurants and shops reopening with no legal limits on social contact) for over two months. Economists are predicting a spending boom of sorts once the high street reopens, with members of the public looking to spend money they have accrued over the past year. However, whilst this is likely to have a positive impact on the economy, after months of enforced closures, reduced footfall, cashflow challenges and potentially onerous pre-Covid contracts, a full recovery is still a long way off. There’s also the spectre of Brexit looming in the background, with many saying its impact will not be felt until cross border trade resumes after Covid restrictions subside.
While the ability to rely on the furlough scheme for these additional months will surely help, it may be but a small crumb of comfort to businesses whose debt levels are already sky high and reduced liquidity may present existential issues. At the same time, so many businesses are facing issues in the form of unfulfilled contracts. As has been the case throughout the pandemic, it will be necessary to consider force majeure clauses and the common law doctrine of frustration to consider the extent to which performance is excused and whether contracts have been discharged.
There are a number of practical steps that businesses can take to deal with issues as they arise, and before disputes harden. This may include assessment of termination provisions, ensuring contractual variations are binding, and being mindful of any inappropriate pressure to agree new or different terms. For more information on these and other key issues, please read the Dispute Resolution team’s guide to contractual performance issues here: Lewis Silkin - Contract Issues. Our team is ready to assist and, in appropriate cases, we can work with clients to reduce or avoid the costs of disputes through our LS Unlock initiative (for more information click here: Lewis Silkin - LS Unlock).
On the one hand, very little changes as a result of the Budget. Lots of reliefs introduced as COVID-19 support measures are being extended, or in some cases are being tapered during the course of the next tax year to avoid ‘cliff edge’ effects... On the other hand, the Chancellor signalled a substantial shift in business tax policy which will have a big impact in future.