The UK’s furlough scheme has been extended, but is this a wise decision?

Updated: Nov 12, 2020


Announced on the 5th November 2020, workers across the UK will now continue to benefit from income support, with the government allowing a 4-month extension of the furlough scheme.

Will anything change?

The extension will be quite similar to the previous job retention scheme: employers will be able to furlough workers and the government will pay 80% of wages (capped at £2,500), saving millions of jobs. Where employers were cutting jobs before, they are now turning to furlough instead – Rolls-Royce is a recent example of this. Self-employed people can also claim a further grant worth 80% of their business profits (capped at £7,500), helping with cash flow pressure during winter.

But this decision hasn’t come without its criticisms. The furlough scheme will be expensive. The cost to pay 80% of wages will be £6.2bn while it will cost a further £7.3bn to support the self-employed. Critics have said that the extra spending will be a huge waste of money and doesn’t necessarily promise to help the most vulnerable.

I think that’s right. Research has shown that employers took advantage of the furlough scheme in September even where they were unaffected by the social distancing rules. Those who claimed the self-employed grant did so even though they did not suffer a huge financial loss. Yet so many self-employed individuals lost all their income but were not eligible for the 80% support.

What are the implications?

The hospitality and retail sectors will benefit from this extension. Although they have not been forced to shut down, they have still faced a huge drop in demand. To me, those sectors seem like they deserve financial support. Social distancing has significantly impacted the way we shop, holiday and eat. Let’s break it down:

  • Retail: Social distancing led to less people shopping in store. Queuing up and having to wait outside detracted a lot of customers which obviously reduced the revenue that those stores would have been generating otherwise. Retail was one of the worst hit sectors in this chaotic pandemic and if we want the high street to survive, we have to ensure stores are able to afford their rents, buy stock and pay wages to staff. We cannot easily move to e-shopping and abandon stores; some of us like looking at items before buying. We need shops to stay.

  • Hospitality: This sector has indeed been stuck in this pandemic for quite a while, facing a loss every day. Restaurants and pubs closing during lockdown meant no more dinners and drinks. Children lost out on their trips to theme parks and zoos in the summer and so owners lost out on money that they had been hoping to enjoy. Museums are simply not the same, even if some of them have since added digital content. These are businesses and therefore require cash to keep rolling. No cash means no business.

Let’s get back to commercial law

So many sectors in the legal industry were adversely impacted and those who have been avidly following commercial law will be aware that litigation and employment attracted work while M&A suffered a downfall. M&A is the bread and butter for so many law firms and so the adversity led to economic losses, as a result of which firms chased to cut costs.

The furlough scheme extension will not only allow law firms themselves to take advantage of this for their own employees but it may also prepare them for their sectors and services. Which sectors will be affected by a downfall of business, is something that I think we’ve already briefly explored. But what’s more important is how firms will adopt a change in their approach to ensure their bread and butter doesn’t simply rest on M&A – an area that is so volatile.

Iqra Ali

Iqra is an aspiring commercial lawyer and completed her LPC at the end of August 2020. 

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