Fair to Furlough? Massive U.K. Job-Saving Plan Prompts Pushback

(Bloomberg) --

Britain’s bailout battle is heating up before the first penny has even been paid in an unprecedented effort to save jobs amid the coronavirus pandemic.

While more than half of U.K. companies are expected to apply for government grants to pay furloughed employees, critics say they expect too much of the cash to go where it’s not needed.

“In my opinion, all allowances, handouts and incentives don’t go to the most needy but to the people or organizations most adept at claiming them,” Hargreaves Lansdown Plc co-founder Peter Hargreaves said in an email. “Letting people have the choice to work would be a better solution.”

Under the Coronavirus Job Retention Scheme, which starts taking applications on Monday, employers can claim a grant covering 80% of the wages for a furloughed employee of up to 2,500 pounds a month ($3,100). The expected participation rate -- and Friday’s announcement that it would be extended into June -- puts the estimated total cost at as much as 56 billion pounds. (The two bailouts of Royal Bank of Scotland Group Plc in 2008 and 2009 cost 46 billion pounds up front.)

‘Whatever It Takes’

The program is designed to minimize the economic damage from a prolonged lockdown. U.K. Chancellor of the Exchequer Rishi Sunak has vowed to do “whatever it takes” to counter the fallout from the coronavirus pandemic, which could see the economy shrink by more than a third in the second quarter. A protracted lockdown could see unemployment increase by over 2 million.

Most industry bodies say the economic damage would be far greater without the government’s intervention and welcomed the program’s extension while reminding firms that there are invisible strings attached.

Fair to Furlough? Massive U.K. Job-Saving Plan Prompts Pushback

“In the end this has got to be about trusting business,” said Peter Cheese, chief executive officer of CIPD, the professional body to the country’s human resource and personal development sector whose survey found the majority of employers in the U.K. expect to access the program. “I think the public will call companies to account if they do not see them acting in a shared interest and not just short term self-interest.

Airlines

For many U.K. businesses - particularly those directly hit like non-food retail, hospitality and travel -- CJRS is already proving essential. In the airline industry, British Airways is planning to use it to help furlough more than 30,000 employees, while low-cost rival, EasyJet Plc said about 7,500 of its U.K. staff were furloughed in April and May. Virgin Atlantic Airways Ltd. said about 80% of its workforce was currently furloughed.

Arcadia Group -- the parent company of brands including Topshop and Dorothy Perkins -- plans to furlough 14,500 workers using taxpayer money. “Obviously the furlough scheme is helpful to retailers whose doors have been closed,” said Philip Green, its billionaire owner.

Nevertheless, Arcadia’s decision to furlough about 90% its 16,000 staff sparked outrage on social media given Green’s personal wealth and past dividends paid to his family. Richard Branson’s $5.8 billion fortune drew similar scrutiny after Virgin Atlantic’s chief executive officer called for a government bailout of the airline industry.

Complaints

“It is at moments like these that we hope that enough billionaire owners will step up and put their immediate financial needs below those of wider society,” said Roger Barker, a specialist in corporate governance at the Institute of Directors.

In many cases, a wealthy backer doesn’t mean the company has ready access to cash.

Edinburgh Woollen Mill, controlled by the multimillionaire Philip Day, has furloughed the majority of its shop floor staff across its various retail brands. A spokesman said that even with government support the company was still having to use “all funds at our disposal and multiple years of retained profits to sustain as many jobs as possible”. It has also activated a previously untapped 100 million-pound credit facility in order to put the business in a stronger position.

“Our owner does not take a salary nor take money out of the business. Their notional net worth is based on the book value of business not liquid wealth,” the company said in a statement.

When and whether employers should reach into their own pocket before the taxpayers’ is sure to remain live as the budget deficit blows out.

Liverpool, Spurs

A public outcry prompted a change of heart at two soccer clubs, Liverpool and Tottenham Hotspur. Both teams reversed initial decisions to furlough some lower-paid employees.

Some media groups, like Reach Plc, the owner of the Mirror titles, decided to furlough, while others -- such as Daily Mail & General Trust Plc -- have resisted.

In a letter to employees, Jonathan Rothermere, DMGT’s chairman, says: “Many news organizations are being forced to furlough staff and introduce redundancies. We have striven hard to come up with a plan which allows us to avoid these actions.”

The group has instead asked its staff earning 40,000 pounds or more a year to accept a graduated pay-cut for the duration of the crisis, for which they will be allocated shares in the parent company.

Accounting firm BDO decided to use the program -- alongside pay cuts for partners -- to help cover the wages of 700 of its 5,500 staff during a period of lower revenues.

Larger rival PwC has taken a different approach.

“Our understanding is that the furloughing arrangements were not designed for firms in our situation,” said Kevin Ellis, chairman of PwC in the U.K. “Furloughing is appropriate for those organizations that would have otherwise made redundancies as a result of Covid-19. We feel that the right thing to do is for our partners to bear any financial impact of the crisis first so that we can protect our 22,000 staff and their dependents and continue to pay our 2,000 suppliers on time.”

Underscoring the debate is the biggest known unknown: What the economy will actually look like once the pandemic has passed.

“One problem is trying to understand how long this will go on for and how deep the impact will be,” said David Ketchin, head of Europe for Hackett Group, a management consultancy. “The scheme absolutely is something that’s prevented large swathes of layoffs in the first instance, but if this does go on for a long time it won’t make a big difference.”

©2020 Bloomberg L.P.

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