29th Jun, 2022

Businesses call for staff costs reduction as coronavirus recession looms

John Carlon 22nd Jul, 2020

BUSINESS leaders in Coventry and Warwickshire have backed calls to raise the threshold for national insurance contributions.

Louise Bennett, chief executive of the Coventry and Warwickshire Chamber of Commerce, said the government needs to help firms cut staff costs, as jobs fears mount.

A survey by the British chambers of commerce and job site Indeed revealed that businesses are operating at half of their pre-coronavirus capacity on average, despite lockdown measures easing.

More than half cited reduced demand and possible future lockdowns as major obstacles to restarting day-to-day operations.

The leading business organisation’s tracker survey, which serves as a barometer of the pandemic’s impact on businesses and the effectiveness of government support measures, received 750 responses and is the largest independent survey of its kind in the UK.

The latest tranche of polling was conducted from 6 – 10 July prior to the Prime Minister’s announcement on 17 July, setting out the next steps in the Coronavirus response for England.

On average, businesses said they were at 53 per cent of their full pre-Covid 19 capacity. Customer demand (54 per cent) and possible future local lockdowns (52 per cent) were cited as the top two obstacles to maintaining day-to-day operations. Thirty per cent said other business costs, such as rent or salaries, were a major obstacle.

The steep decline in business conditions seen at the start of the pandemic is levelling off, but firms still face extremely challenging conditions as almost half (46 per cent) reported a slight or significant decrease in revenue from UK customers compared to June.

Forty-four per cent reported a slight or significant decrease in revenue from overseas customers, with 34 per cent reporting no change, while 56 per cent of firms reported a slight or significant decrease in cashflow.

Rates of late paying customers are also up on 2019.

Flexible furlough, which allows businesses to bring employees back part time, began on 1 July and 31 per cent of companies indicated they have furloughed staff on a part-time basis, while 56 per cent of firms surveyed said they still have staff furloughed full time.

Thirteen per cent of respondents said they had made redundancies since the beginning of the crisis, with 33 per cent saying they intended to over the next three months.

Redundancies were more likely in consumer focused businesses, which are experiencing the worst effects of a prolonged period of closure and reduced demand.

Prior to the Prime Minister’s speech on 17 July encouraging more people to return to offices where they can, 62 per cent of respondents expected some or all of their staff to be working remotely for the next 12 months. This increases to 71 per cent for B2B, and falls to 53 per cent for B2C firms.

Data from Indeed indicates that searches for remote work in the UK have more than doubled since the outbreak of Covid-19. When it comes to job postings explicitly mentioning remote working, the rate has increased from three per cent before Covid-19 to five per cent now.

The BCC and Indeed have called on government to act swiftly to reduce the overall cost of employment to protect business and preserve as many jobs as possible in the coming months. The two organisations have called for an 18-month expansion of the Annual Investment Allowance from £4,000 to £20,000 and an increase the threshold for employer National Insurance Contributions from £8,788 to £12,500, which could save businesses around £500 per job.

Ms Bennett said: “The Government has supported businesses to survive through the crisis but it must be ambitious now in the way it helps companies in the restart and recovery phase.

“That means cutting down on the costs of employing staff and giving firms an incentive to invest in their growth.”

BCC Director General Adam Marshall said: “Our findings demonstrate that the UK’s economic restart is still very much in first gear.

“Businesses are grappling with reduced customer demand, an on-going cash crunch, and the potential for further lockdowns during an uncertain autumn and winter ahead.

“The Prime Minister’s encouragement to return to workplaces and further updates to business guidance will not be enough on their own.

“The time has come for the government to take radical steps to slash the tax burden around employment to help companies pay valued staff, rather than the Revenue. A major boost to the Employment Allowance, and an increase in the threshold for employers’ National Insurance contributions, should both be in the Chancellor’s sights if he wants to help viable companies save jobs as the furlough scheme comes to an end.”

Jack Kennedy, economist at the global job site Indeed, said: “The slowdown in consumer activity mirrors hiring activity in the UK. Today, there are 60 per cent fewer job postings than there were before the outbreak of Covid-19 and so far there are few signs of a V-shaped recovery in vacancies.

“The furlough scheme has been an important lifeline to millions of people but the fear is there will be a sudden rise in unemployment after that umbilical cord has been severed. With one third of companies planning redundancies over the next three months, we will likely see a scramble for available roles as the labour market becomes heavily supplied with people looking for work.

“For jobseekers looking to bounce back into the workforce, many have turned to searching for remote work in a bid to secure jobs. However, not all jobs can be performed at home and a growing proportion of people are broadening their search by looking for roles farther afield than their local area.”

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