MPs have urged Rishi Sunak to extend the taxpayer-funded furlough scheme businesses with a chance of surviving the coronavirus crisis.

The Chancellor should “show flexibility” and target companies that are still viable when the existing furlough scheme ends in October, members of the Treasury select committee said.

The committee said the Chancellor should “carefully consider” whether a targeted extension was needed for the furlough scheme, which has protected 9.6m jobs to date at a cost of £35bn. The scheme will be wound up at the end of October. Some 11 per cent of the British workforce were on partial or full furlough in mid-August, according to a survey published on Thursday by the Office for National Statistics.

>See also: Where to find your £1,000 small business lockdown grant

The cross-party select committee said in its report on the economic impact of the COVID-19 pandemic, published today, that a large proportion of businesses in the sectors most affected by social distancing might have a long-term future.

“The key will be assisting those businesses who, with additional support, can come through the crisis as sustainable enterprises, rather than focusing on those that will unfortunately just not be viable in the changed post-crisis economy,” said Treasury committee chairman Mel Stride.

But Boris Johnson has repeatedly ruled out any extension of the job retention scheme, with the Prime Minister reiterating this week that it would do no good to keep people in “suspended animation” in jobs which were no longer viable.

Critics have warned that in its current form – where it has been available to all companies, paying up to 80 per cent of employee wages if they are temporarily unable to work – furlough allows even failing “zombie” businesses to struggle on. According to the ONS, one in five businesses are “zombie” companies, where any profits are swallowed up by servicing debt.

Mike Cherry, national chairman of the Federation of Small Businesses, said: “The priority should be protecting viable small businesses – and all the jobs they provide – that have been disproportionately impacted by the coronavirus crisis, including those caught by local lockdowns, subject to continued national restrictions, or with staff that have directly suffered because of Covid.”

>See also: How to claim your £1,500 Kickstart Scheme grant

The committee criticised the job retention bonus, which pay companies £1,000 for every furloughed staff member brought back to work, saying that most of the money will be spent on workers who would be retained anyway.

Convert SME debt into student loan-style scheme

The committee also called for the government to set out plans within three months to help small businesses pay back loans they have taken out during the pandemic.

MPs warned there was a risk of the recession being prolonged because overindebted businesses would not recruit or invest.

“It remains unclear how the government expects businesses to pay back loans in the future,” the report said, noting that many companies were unlikely to make up revenue destroyed by the pandemic.

One option might be to convert small business loans into a form of contingent tax liability, where the level of repayments would be linked to a company’s financial health — as with student loans, where repayments are linked to graduates’ earnings. On Wednesday, centre-right thinktank Onward argued for just this approach.

Mike Cherry, chairman of the Federation of Small Businesses, backed the call for a student-loan type approach to repaying Bounce Back Loans. He also called for the government to extend the November deadline for applying to the Bounce Back Loan scheme, which offers a 100-per-cent government guarantee to small business loans, given continuing economic uncertainty and the delays many had faced obtaining loans.

For larger businesses the Treasury could consider investing in equity stakes, the committee said.

Cherry said: “The Bounce Back Loan scheme has been a huge success – helping more than a million firms secure swift cash injections to see them through an incredibly challenging six months. We back this report’s recommendation … giving small firms the confidence to invest, hire and expand today, rather than hoard cash in fear of what tomorrow will bring.”

Miles Celic, chief executive of financial services lobby group TheCityUK, said: “This select committee report adds to the growing consensus that large-scale unsustainable SME debt is likely to become a drag anchor holding back the UK’s economic recovery. There is no easy answer to this problem, but a great deal of creativity and innovation is going into finding a viable way to convert, restructure and repay this debt.”

Further reading

City grandees call for small business Covid debt to be turned into tax owing