With Furlough slowly coming to an end, what does the immediate future hold in store for SMEs?

July 28, 2021

Chris Lipscomb, COO Blue Pencil, FCIPD

Although often overlooked, SMEs actually account for more than 60% of all jobs in the UK. Last year, according to the CBI, nearly a quarter of all small businesses had to cut jobs despite the Furlough scheme. The most recent published data quoted by the BBC (up to 31 May 2021) shows that there are still some 2.4 million employees being covered under Furlough. Whilst this is less that the 5.1 million covered at the peak, it is still estimated that nearly one third of all employers have someone covered under Furlough with the bulk of these falling under the SME category.

Bizarrely, instead of doom and gloom, all the talk to date has been of chronic staff shortages in certain sectors with current estimates highlighting nearly 900,000 vacancies across the UK. This is interesting as on the other side of the equation, we have approximately 1.6 million unemployed which is the highest number since 2015. With many SMEs having only survived this far with government backed loans and grants, we should not underestimate the job cull that will inevitably take place once Furlough support has finally ended. SMEs have also faced the added burden of trying to recover from a pandemic only to find themselves in the midst of a “Pingdemic” with productivity being hugely constrained by the numbers of staff being forced to isolate due to the missives from the government created NHS app.

Whilst some areas of the public sector like the NHS have very much been on the human front line of the pandemic, the disastrous financial consequences of Covid 19 have largely fallen on SMEs. With little sign of the promised return to normality any time soon, we should not be overly surprised if many just decide to close. There is however as always some seemingly contradictory evidence. In the first three months of 2021 alone there were 137,000 new business start ups (FT 12 May 2021) which is allegedly the “strongest start up boom in a decade”. Surely then, this is just another example of people adapting to a changing consumer society and is real evidence of SME rebirth?

Certainly, the pandemic has created a desire for change amongst many which has led and is leading to record numbers of resignations from current jobs. Many will find solace in setting up businesses for themselves to pursue work more aligned with their interests. This is good in many ways but are they going into areas of work that need to be done or are many heading into the discretionary service sector that has boomed with past economic prosperity? If people are becoming self employed HGV drivers or setting up health related businesses, we might feel more confident that they will be addressing the real job needs in society but as it stands, this is unlikely. Whatever they say about record numbers of business start-ups, the failure rate for new businesses has sadly remained fairly constant throughout the last few decades, with more than half failing within the first year or two of start-up.

What we do know is that Covid 19 in some shape or form will linger for many months or possibly even years to come. The business environment will be less predictable and once the positive effects of some of the easing of restrictions have passed, many SMEs will still be left with a financial hangover. For business owners, the quest for meaningful work etc that people seem to be searching for will be less critical than simply finding ways to keep their businesses afloat. 

For some SME business owners, it may just not be worth the risk of continuing with their businesses. The battle for many has already been hard both psychologically and financially. Uncertainties about future revenues and accumulated debt piles will sap the motivation and will to carry on.

The SME sector that emerges post Furlough will inevitably be more fragile with a larger number of sole providers than before. Whether the government itself is prepared for the less predictable revenue flows it gets from this vital sector is of course an entirely different matter.

In the words of Kate Cooper, Head of Research, Policy & Standards at the Institute of Leadership & Management:

“As we recover from the Covid-19 pandemic, the next few months and years are likely to be very tough for many small firms”.

Whatever else, it most certainly will not be “business as usual” for many SMEs still weighed down by debt and uncertainty.