Coronavirus update: Businesses Cut Jobs as Demand Falls Away
The recession caused by the pandemic has inevitably led to a steep fall in demand, revenues and profits for most UK businesses.
There has been substantial government financial support including the Job Retention Scheme that allowed firms to furlough workers and claim a wage subsidy of 80% of salaries up to £2,500 a month.
But the gradual withdrawal of state financial support allied to a continued low level of economic activity across most sectors has brought a torrent of profit warnings and an accelerating number of high-profile business insolvencies.
Examples include Debenhams, Monsoon, and TM Lewin, furniture stores Harveys and Bensons for Beds. Numerous companies have announced job cuts as they look to control operating costs at a time of low and uncertain demand and revenue streams.
Boots announced 2,000 job losses and the closure of many of their less viable stores. Restaurant chains Ask and Zizzi were sold in a £70m prepack administration deal involving 1,200 job losses and other restaurant chains such as Pizza Express, Byron and the Restaurant Group (which includes Frankie & Benny’s, Wagamama, Chiquito) said that one tenth of their restaurants would not be re-opening after lockdown restrictions were lifted. Pret is reducing their payroll by at least 1,000 people, the Royal Mail is shedding 2,000 workers and British Airways may axe more than 10,000 from their global payroll.
Cutting back on employment is inevitable for labour-intensive businesses where wage costs are a large percentage of total operating expenses.
But redundancy also imposes extra costs on a business. Anyone who has been with their employer for at least two years is entitled to statutory redundancy pay worth a maximum of £16,140. Redundancy pay is based on age, the average weekly wage and how long an employee has been with a business.
Newspaper headline tend to focus on businesses that are shedding jobs and adding to the unemployment total. We should remember that new jobs are being created – for example the logistics firm Hermes is adding 10,000 extra workers to help meet rising demand and supermarkets have been hiring as well.
Overall, the recession – as expected – is causing an avalanche of job losses. The unemployment rate in the UK may well reach 10% of the labour force by the end of 2020.