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Furloughing Scheme to Run Until October But Fears Over Problem Debt Run High

Chancellor Rishi Sunak has confirmed that the furloughing programme will run until October of this year. The Job Retention scheme currently covers one million companies and 7.3 million workers, but it will change from the end of July.

What Did the Chancellor Say?

In a series of statements, Sunak pointed out that the scheme will now be extended for four months. This will take it up to the end of October, by which point the British government will have provided eight months of support to the country’s employers and staff.

Some key differences will be introduced in August. Until the end of July there will be no changes but after this, employers will be expected to “start sharing” the cost of salaries. The idea is that, from August to October, the transition back to normal working will have “greater flexibility”.

Those firms that currently have furloughed staff will have the option of bringing them back on a part-time basis. More details on the changes from August will be advised by the end of May, but Sunak confirmed that employees will continue to receive 80% of their salaries, up to £2,500.

This update made it clear that the rumours of the amount being cut to 60% were incorrect. The Chancellor also pointed out that he doesn’t agree with the opinion that some people may now be addicted to furloughing.

The Problem Debt Issue

At the same time, TheCityUK trade body has carried out a study for Bank of England Governor Andrew Bailey. They say that the pandemic and subsequent lockdown means that the country’s problem debt total could reach as high as £100 billion.

It is thought that large volumes of fresh capital will be needed to help out those businesses that have suffered problems. This is based on an estimated £90 billion to £105 billion of unsustainable borrowing that firms will find it difficult to repay.

Up to £20 billion of this amount is believed to fall under the government’s coronavirus business interruption loan schemes. Some of the possible solutions that have been suggested include banks writing off or deferring payments. Debt restructuring, government help and new capital being raised through equity are other possibilities mentioned in the report.

In normal circumstances, bank lending to small businesses in the UK reaches around £57 billion in a year. Companies also raise close to £7 billion each year in total equity finance. With current debt so high, paying debt collection fees to recover money is now an increasingly popular option.

It is expected that the group will report back to Bailey next month with their suggested solutions. To do this, they need to carry out more research, to find out the amount of capital that could be provided by the private sector.

The expectation is that the economy continues to slowly get back to normal between now and the end of the year. Among the sectors now reporting improved figures are DIY stores, many of which have opened with improved safety measures in place.