EXCLUSIVE: The Bank of England is eyeing payroll finance technology as a possible successor to the furlough scheme, which ends in October.

The coronavirus jobs retention scheme will cost the government £60bn in total but industry is braced for millions being made redundant when the scheme closes on October 31.

PwC estimates that without any extension one in five of those now on furlough will be made redundant. The Bank of England itself estimates that unemployment will almost double to 7.5 per cent by the end of the year, as things stand.

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Called the Working Capital Jobs Retention Scheme, the ground-breaking payroll technology is the brainchild of David Brown, fintech entrepreneur and chief executive of Hi55. The WCJRS would enable the banks to fund up at least £4,300 per employee risk free, throwing businesses another working capital lifebelt.

This is because EU law stipulates that all European governments must still cover payroll for a fixed period should their employer go bust. The Employment Rights Act has been law since 1996.

In the UK the government must step in and pay each employee £538 for each week worked, depending on how much money they are owed should their employer go bust. The eight-week scheme is capped at £4,304 per employee.

Brown would like the government to double the guaranteed pay period to four months, which would guarantee each employee £8,600.

In effect, the Working Capital Jobs Retention Scheme would give the government and businesses another three months’ breathing space through to February as they recover from COVID-19.

Brown estimates the cost of the facility would be no more than 3 per cent.

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The fintech entrepreneur has a track record when it comes to disrupting trade finance and payments technology. His firm Oxygen Finance was a leader in early payment technology, particularly when it comes to local governments paying SME suppliers. And in 2016 he founded Previse, an artificial intelligence-driven platform for invoice settlement.

Having met with the Bank of England, Brown has also had meetings with high-street banks, as well as HMRC, which he says has also been supportive of his idea.

Brown said: “The general feeling is that if we can make this work, then this works for everyone. The Bank of England’s view is that if this is truly state-backed, then it is highly capital efficient for the banks and a new way to lend.”

If it can come off, the Working Capital Jobs Retention Scheme would be a useful adjunct to Bounce Back Loans and the Coronavirus Business Interruption Loan Scheme when it comes to working capital for SMEs.

The clock of course is ticking.

Brown said: “Huge efforts are being done by all parties to try and make this available quickly. We can make this available to the SMEs if we all work together.”

Brown says he is confident he could get the Working Capital Jobs Retention Scheme up and running by October if the high-street banks and the Treasury come on board.

The Previse founder has already spent £1m of his own money building the platform with Japanese software giant NTT Data, regardless of whether the UK banks get behind the concept, in what he calls “the biggest financial gamble of my career”.

Brown’s thinking was that large corporates could use Hi55 to raise working capital through their payroll obligations anyway.

Brown said: “The greatest risk to your business’s recovery is the implications for working capital that you will be faced with as you try to recover. Because your revenue won’t reinstate itself over the next few months, but your costs will continue regardless. With that combination, you will run out of money faster than you think. The challenge for the global economy is how do you recover without going insolvent?”

Payroll obligation

Brown’s original idea was to see if small businesses could use their payroll obligation as a way of forward funding their business, using payroll to bring in capital even if they didn’t qualify for an overdraft.

Brown said: “As we were started further into our journey, we started to realise that what we were building would be good for large employers too.”

Another wrinkle is that Hi55 would enable employees, especially low-paid ones, to withdraw their salary weekly as opposed to monthly, fending off loan sharks and payday loan companies. Brown strongly believes that being paid monthly is an anachronism from the time when payroll had to be calculated by hand. There is no actual reason why staff should not be paid weekly as opposed to monthly, he says.

Brown said: “Everybody is positively engaged on this idea now. Everyone wants to stop the impending recession from being catastrophic. There’s not one person in the room who doesn’t want to avert it. The question is even if we all do agree, can we do it fast enough?”

The Bank of England declined to comment.

Further reading

Nearly a quarter of small businesses cut jobs despite furlough scheme