The news that the government will continue to pay the wages of a quarter of private sector employees (in addition to the quarter of the workforce whose wages it already pays) until the end of October is good news for beleaguered businesses that are still coming to terms with the lock-in.

The alternative was to allow thousands of businesses to go to the wall and millions of jobs to be lost resulting in a reduction in productive capacity and permanent damage to the economy.

So long as the lock-in remains in place, and whole sectors of the economy are obliged to remain shut, it makes sense for the government to continue its support for viable businesses and jobs so that they can recover and start paying taxes again as restrictions are lifted.

But exiting the emergency financial support is going to be as difficult as lifting the lock-in itself, which will represent a ‘double-whammy’ for struggling businesses trying to get back on their feet.

As sales start to pick up, so will the working capital businesses need increase, putting a strain on already stretched cash flow. If at the same time the furlough comes to an end and then a few months later the CBILS and BBLS loan repayments start, a second cash flow spike will hit businesses for which many will be totally unprepared.

This is in part why the Chancellor, who a week ago was warning that the government’s jobs retention scheme, which is costing as much as the NHS, was “unsustainable” decided to roll over the furlough scheme, on the same generous terms, for another four months.  It makes no sense, however, for the government to continue to subsidise jobs that have no chance of being retained – all that does is delay the inevitable and encourages businesses to delay tough decisions rather than restructure and plan for the inevitable cash flow difficulties posed by the recovery.

Indeed the decision to reform the scheme to allow those on furlough to work part time, but only from August, could mean some businesses stay shut longer than necessary.

Government support will need to shift from cash handouts and loan guarantees towards measures to help businesses adapt their business models and to help those whose jobs disappear to learn new skills. One positive outcome of the crisis will be the emergence of new businesses started by entrepreneurs who see huge opportunities in the new normal.

Noel Guilford