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Is mass unemployment an inevitability?

Posted: 21 Jul, 2020

In June the Organisation for Economic Cooperation and Development (OECD) released a report predicting that Britain’s economy is likely to suffer the worst damage from the Covid-19 crisis of any country in the developed world. Predicting a slump in the UK’s national income of 11.5% during 2020 it ruled out the possibility of a V-shaped recovery, saying the path back to previous levels of GDP would be impeded by long-lasting effects of the pandemic.

Following this report, the OECD released a second report predicting that unemployment in the UK could rise from its current rate of 3.9% to 11.7% by the end of the year, or 14.8% if the country suffers from a second wave of infections. It also highlighted that the impact of the pandemic on unemployment has been roughly ten times worse than during the first few months of the 2008 financial crisis.

Already, a string of businesses including BP, Rolls Royce, HSBC, Boots, John Lewis, Upper Crust and most airlines have announced extensive job cuts, but the true state of the UK labour market has been disguised by the furlough scheme propping up 9.3 million jobs. A more accurate picture will emerge in August once the scheme begins to taper off and employers will have to either make more staff redundant or start making a contribution.

To try and prevent the mass unemployment predicted by the OECD, Rishi Sunak unveiled an extension to his plans for saving jobs by offering a £1,000 bonus for every staff member who is brought back from furlough when the scheme ends in October and is kept on for a further three months. In addition, he announced a number of new training and apprenticeship initiatives to encourage employers to recruit young people.

He also confirmed that the furlough scheme will not extend beyond October as many hoped it would and while he conceded that jobs would be lost, he said he would “never accept unemployment as an inevitable outcome” of the pandemic.

But while Rishi’s measures are designed to support jobs and encourage the employment of young people, many have criticised that they still don’t account for small company directors who have slipped through the gaps in the various funding schemes since the pandemic began. Many rely on dividends for their own earnings and have not been able to claim any personal financial support. Without support, many may not be able to reopen their doors which will mean more employees being made redundant further adding to the unemployment numbers.

Can turnaround professionals help directors reopen their doors and retain employees?

Perhaps the best support turnaround professionals can provide to directors right now is to help them understand their options.

Many small companies were struggling to maintain even basic cash flow forecasts before the pandemic, getting by month by month with a bit of luck. Covid-19 has changed all that and many directors have found themselves struggling to assess whether or not they can afford to keep all their employees, buy supplies, pay rent and reopen their doors.

Turnaround professionals with expertise and business skills acquired from dealing with crises on a daily basis, can provide an exceptionally valuable advisory role to help directors find a solution.

Businesses will need to look at all their costs and work out where they can make savings and while this might involve making some people redundant, early action can also save the jobs of others. Measures can involve more than cutting costs but also include changing credit terms or selling assets, all of which will improve cash flow to help retain key employees. For many businesses that struggle to maintain proper cash flow forecasts and don’t know where they could make efficiencies, restructuring and turnaround professionals will be invaluable.

TMA UK is part of TMA, a global organisation that represents the interests of turnaround professionals as its members who have the skills needed to assist in these unprecedented times. If you need assistance, please contact our helpline on 0844 804 0116

 

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