Rishi Sunak, the Chancellor of the Exchequer, has announced that all employers will receive a £1,000 bonus for each furloughed worker they retain for 3 months after the end of the Job Retention Scheme.
This sounds great on paper, but the Job Retention Bonus, like the Coronavirus Business Interruption Loan Scheme (CBILS) before it, will only serve those businesses that don’t need the money – says Rohan Byles, Compass CFO.
When CBILs was first launched, it was largely welcomed by the business community as a sign that banks would turn on the funding taps, however after only a few weeks it was obvious that the 80% government guarantee was not enough to change banks behavior, and they were still only lending to those businesses that were financially secure.
Anecdata suggests that most SME applications were denied, while successful applications were predominately national organisations that did not need the cash, but used it to pay off more expensive financing facilities, or put the cash in the bank for a rainy day.
Thankfully the Chancellor took steps to address the failure of CBILS by introducing the Bounce Back Loans (BBLs) – 100% government backed loans of up to £50,000 for small businesses.
The amount of money lent under BBLs is now over £31bn, far exceeding the £11.85bn that has been lent through CBILS.
Looking at the CJRS Bonus, I would expect the outcome to be much the same as CBILS, but instead of failing to move the needle on commercial lending, the CJRS Bonus will not move businesses to retain furloughed staff that they have already planned to make redundant in the coming weeks.
The net effect of this will be money going to those businesses who can already afford to retain staff without the bonus, while smaller businesses who are severely cash strapped and need to make cuts will miss out again.
In pure economic terms, the money will flow to where it has the least utility. I am not sure how the Chancellor will be able to fine tune this latest policy.
Personally, I would like to see a sliding scale of payments – i.e. first retained employee fetching £3000, then £2000, £1500, £1000, etc. The larger amounts for the first few retained employees would provide a greater incentive for smaller businesses to retain extra employers, ensuring the money goes to where it has the greatest utility, while the diminishing bonus payments ensure big businesses do not bank a large windfall for doing nothing.
Some prominent businesses have already come out to say they will not take advantage of the scheme: Primark was quick to release a statement saying they would say no to a potential £30m bonus, followed shortly by John Lewis, Rightmove, and several others.
It will be interesting to see how Rishi Sunak responds.
Rishi Sunak – Chancellor of the Exchequer