Almost a third of companies plan to make job cuts in the next three months as the government prepares to wind down its furlough scheme, one of Britain’s leading business lobby groups has warned.
Sounding the alarm amid warnings of a steep rise in unemployment, the British Chambers of Commerce (BCC) said 29% of businesses in a survey of 7,400 firms planned to cut the size of their workforce in the next three months.
The business lobby group said this was the highest percentage of companies planning to make redundancies since it began tracking employment intentions in 1989. It said big companies with more than 250 staff were more likely to be planning job cuts than smaller firms.
Concerns are mounting over the pace of Britain’s economic recovery as the government prepares to wind down its furlough scheme from next month. The Labour party, business leaders and trade unions have warned that a lacklustre rebound and the removal of government support could trigger mass unemployment this year.
On Tuesday the Office for Budget Responsibility warned that scaling back the furlough scheme, which covers 80% of the wages of temporarily laid off staff, could lead to a sharper rise in job losses. The Treasury’s independent economics forecaster said at least 10% and as much as a 20% of the 9.4m jobs furloughed on the scheme will be made redundant. As many as 1.2m companies have benefited from the support, at a cost to the exchequer so far of £28.7bn.
Issuing three downbeat scenarios for Britain’s economic prospects, the OBR said unemployment would more than double in every eventuality, with the jobless rate set to hit 12% before Christmas under its central scenario.
Comfortably surpassing the hit to jobs caused by the 2008 financial crisis, the unemployment rate last peaked close to 12% in 1984.
Official figures due to be published on Thursday morning are expected to show a rise in the jobless rate from the current level of 3.9%, as more companies cut jobs amid the financial stress caused by the coronavirus crisis.
The BCC said the survey was carried out prior to the chancellor, Rishi Sunak, announcing up to £30bn of fresh tax and spending measures last week to protect jobs and kickstart Britain’s economic recovery from Covid-19.
On Wednesday, Sunak defended the measures outlined in the summer statement in front of MPs on the commons Treasury committee. Admitting he could not protect every job, he said: “We have the prospect of many people losing their jobs. I’m determined to do what I can to protect as many jobs as possible, and I believe this will do that.”
The chancellor dismissed calls from business leaders and Labour to offer more support to the hardest-hit sectors of the economy, such as hospitality and retail. “It’s easy to say, ‘oh it should be targeted,’ but no one is able to say which sectors should be excluded from it,” he said, adding that it would be administratively difficult to implement.
Sunak also warned companies they should not expect help with their debts from the government, saying firms had entered the crisis with strong balance sheets. He said there would be a “high bar” for bailing out firms with taxpayer funds, and only when a company had some strategic value to Britain and a sustainable future.
Despite the additional spending measures promised at the summer economic update, the BCC said Sunak still needed to take further action to limit the damage for jobs, including a temporary cut in employer national insurance contributions and more funding for training staff.
Hannah Essex, co-executive director of the BCC, said the chancellor should consider launching the additional support before the autumn budget later this year, to stop substantial redundancies.
“Many businesses are suffering from an historic cash crunch and reduced demand, meaning firms will still face tough decisions despite welcome interventions made in the summer statement,” she said.