Furlough costs the UK Hospitality industry in excess of £542 million a month during lockdown – The True Cost of Furlough
Furlough has been a lifeline for so many businesses in the hospitality sector and beyond, however despite all that the scheme has done to ease the mass redundancies and retain jobs in the sector, it is clear that Furlough is not the free lunch it is sometimes portrayed as. Operators using the scheme benefit from a grant that covers up to 80% of their employee’s average earnings (probably the most simplistic way of describing the behemoth of complex exceptions, limits and grey areas associated with the CJRS). For many employees, this money will see them scrape through the crisis, albeit uneasily. However, for the employer, the ability to be able to keep teams employed comes with a cost and it is no insignificant amount.
For a start, the employer continues to pay National Insurance contributions, holiday is still accrued, and pension costs are not included in the grant. The total figure for average extra employment costs per month per site, over and above government furlough support, comes to: £3,738 which means the monthly furlough bill for hospitality comes to £542 million.
On top of employment costs, operators have rent to pay, utilities and insurance payments; government grants based on rateable value are available and are aimed at offsetting a large sum of bills, yet leave operators constantly out of pocket. There are also variable costs to using the Furlough scheme, such as cash flow costs owning to the fact that the scheme pays in arrears: operators are seeing the money leave their businesses, before being able to claim it back. For most businesses who have little or no expectations of trading profitably for the first 4-6 months of 2021, funding is becoming more and more critical.
Rob Pitcher, Chief Executive of Revolution Bars and user of S4labour said that the scheme, while welcome, has cost the business £1million at a time it has seen revenue vanish.
Sam Wignell Chief Customer Officer at S4labour added: “With the current levels of government support, businesses are going to run out of cash before they get the opportunity to reopen. The true cost of furlough is much higher than one might imagine.”