What will the end of the furlough scheme mean for hospitality?

Kate Malczewski

Kate Malczewski

04 September 2020

September means that employers must now make additional furlough contributions. Kate Malczewski finds out how this – and the impending conclusion of the government scheme – are affecting bars in the capital

In May, Chancellor Rishi Sunak announced an extended furlough scheme that asked employers to ‘share the cost’ of furlough with the government while allowing employees to receive furlough payments while working part-time.

You know the drill by now: for the months of June and July, the government paid 80% of furloughed employees’ wages, with a £2,500 cap, as well as employer National Insurance (NI) and pension contributions. In August, the government continued to pay 80%, while employers took on the NI and pension contributions.

As of last Tuesday (1 September), the government has reduced its payment to 70% of wages, with employers topping up 10% and paying the contributions. Next month, employers will pay 20%, and in November, the scheme will close.

‘The introduction of employer contributions to the scheme from August will put some businesses under particular strain, but the way it is tapered allows for a gradual adjustment,’ Kate Nicholls, chief executive of UKHospitality, commented in May after the flexible furlough scheme was announced.

But now, with the end of Eat Out to Help Out, the arrival of September’s increased employer contributions and the looming end of the furlough scheme, ‘gradual adjustment’ has begun to feel more and more like a ticking time bomb for many operators.

‘Without government support, thousands of businesses whose trade hasn’t yet got back to normal may decide to let their workforces go,’ Trades Union Congress (TUC) general secretary Frances O’Grady wrote in The Guardian last week. ‘And those thousands of businesses could mean millions of jobs.’

‘Our only option’

Unfortunately, O’Grady’s statement reflects the current predicament of many bars. It’s a painful reality that Alistair Burgess, owner of Happiness Forgets, Original Sin and the newly opened Ever After Bar, has come face-to-face with since reopening his venues in July. ‘As much as I want to look after as many people as I can, I am now in that situation where I've had to let a few people go,’ he told Imbibe. ‘We did everything we could for as long as we possibly could. But if we want to keep everybody else employed and keep the venues up and running, it's literally our only option.’

Part of the difficulty for small bars, he said, is that limited space means limited customers – a challenge that is further compounded by the lagging footfall in key areas of London. ‘With reduced numbers in the bar, you have to run your furlough scheme as effectively as possible. To pay 10% or 20% as the furlough scheme states and pick up the tax on NI is a pretty big ask when you're trying to keep the business afloat and pay your bills.’

Of course, this problem isn’t limited to independent venues like Burgess’. The same issues have taken hold of high street operators: last week, grab-and-go chain Pret a Manger announced that it will cut almost 2,900 jobs; this week Costa Coffee reported that 1,650 of its employees are at risk of redundancy as it cuts costs.

And Burgess recognises a similar situation playing out in big-name hotel bars, too. ‘We all know the story of what happened in The Savoy,’ he said. (Last month, senior members of The Savoy’s bar team resigned following a company restructure.) ‘These inevitable redundancies [at larger companies] have to happen because [the business has] to appease [its shareholders]. They need to fulfil their commitment to the people who've invested in the business, and those shareholders are just going to be like, we've got to cut back.’

Side effects

But even bars that have managed to take their employees off furlough without redundancies are still feeling the effects of the end of the scheme.

When lockdown orders went into place in March, Richard Wynne, owner of the Callooh Callay bars in Shoreditch and Chelsea and Little Bat in Islington, furloughed 32 of his 37 staff members. Since July, he has brought back all of his employees. ‘Honestly, the furlough scheme has runs its course for us as a business,’ he said. ‘To maximise revenue and follow guidelines we need all three rooms open offering full table service. This obviously means we need a certain number of staff to cover all tables and upsell as much as possible.’ To meet those needs, he decided to hire five more employees.

However, Wynne noticed that when hiring new staff, he received far more applicants than usual – many of them extremely overqualified for the roles advertised. ‘This might be great in the short term, but there is a certain amount of scepticism on our part. Simply put, a GM doing a supervisor role will be bored within a month and will continue looking for another role and leave with minimal notice once a better job opens up.’ 

For businesses like Wynne’s – no longer making use of the government’s furlough scheme yet still grappling with reduced footfall and the upcoming end of the debt enforcement moratorium on 30 September – the prospect of employee turnover has become yet another concern in an ever-mounting list: ‘The support for workers has been fantastic, but for us as a business, we are really struggling.’

‘Someone’s gotta pay’

And so the question arises: are more furlough-related redundancies truly inevitable? For the TUC’s O’Grady, the answer is a resounding no – but only if the end of the furlough scheme is reconsidered and action is taken swiftly.

‘The job retention scheme showed what active government can do in a crisis,’ she commented in that same Guardian article. ‘So come October, the government mustn’t just pull the plug… If the government acts fast to keep people in work, our economy will recover faster and our country can build back better.’

Callooh’s Wynne is more matter-of-fact: ‘It’s impossible to keep everyone furloughed and there had to be a cut-off date. To have to pay tax and NI on an employee who isn’t contributing to the company is a big ask and I can see employers instantly looking at their margins and trying to cut costs, which would mean a lot of people being made redundant as a result.’ He thinks a potential solution is to create a sector-specific scheme that takes into account the severity of local lockdowns. 

For Burgess, redundancies seemed to be the only choice. ‘Someone's gotta pay for furlough in the long run. The hope was that the impact of the virus wouldn’t last as long as it did, but it is what it is. We are dealing with it.’ 

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