CHANCELLOR Rishi Sunak has been offered a furlough replacement scheme that has been designed by a Scottish fintech pioneer and a leading data company.

It comes after David Brown of Toupay and David Costa of NTT Data UK wrote to HM Treasury calling for action over the furlough scheme they say is limited in scope and lifespan.

Their system is set to go live on a large scale for major corporate customers in August and it is claimed this could be adapted for small and medium sized enterprises also, by extending existing state-backed guarantees to allow a separate “credit rating”.

Toupay, described as “the only funding solution based on employee payroll in the world” was founded by Mr Brown, who was behind Glasgow firm Previse, and developed the system that allowed business suppliers to access to working capital at a low rate while they waited on an invoice to be paid, while NTT Data is one of world’s largest IT services providers with over 120,000 employees globally.

The scheme targets using the existing system whereby eight weeks garanteed statutory back pay for workers in firms which fold to raise up to £86 billion in finance, meaning firms can use the money to keep running and paying staff.

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They said in their Treasury submission: “In normal times, if a company borrows from a bank to pay staff wages to see them through a crisis, they can pay back over time - if the loan is granted and provided they survive.

“If they don’t survive and become insolvent, employees are entitled to eight weeks’ arrears in pay - up to a maximum of £538 per week - guaranteed by the Government through existing employment legislation.

“NTT Data and Toupay will use that guaranteed cover of arrears in pay to secure the money to pay employees’ wages and help avoid insolvency in the first place.”

They added: “Banks fund the payroll of employees, using the Government’s guarantee to underwrite the advances. The capital weighting and cost of credit for the banks should be very low because of the UK sovereign rating of the National Insurance Fund guarantee. This should make the interest rates charged to the end user - the employer - very low.

“Employees receive their wages and the Government collects income tax and national insurance as usual from salary that otherwise wouldn’t be paid, and companies repay the debt over the long term, for example over 10 years.”

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Mr Brown said at sovereign debt rates the cost of doing this per employee is low and no credit checks would be needed.

Because the business is able to keep paying its employees, and keep trading and returns to a sustainable footing, the debt is then repaid over the long-term, he said.

Mr Brown said: “We have found a mechanism to finance everybody in the country.

“It is being rolled out, but when we roll it out it is only going to be for the biggest companies in the country. I need Government engagement to say we need something like this for the SMEs.

“The primary legislation exists.”

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He said: “The problem is how do you recover with furlough, because furlough means you don’t work and to recover you have to work.”

It would benefit small business in Scotland who need a credit rating to access capital.

He also said: “One of the things I’m suggesting in this payroll finance is that I want to pay employees weekly, because what is creating predatory lending like payday loans is that people are having to wait a month for their money and that causes financial poverty."

A Treasury spokesman said: “We have provided a generous and wide-ranging package of support for businesses.

“Our job retention scheme has protected more than nine million jobs across the UK.

“We have extended it until October – meaning it will have been open for eight months and will continue to support businesses as the economy reopens and people return to work.

“As well as furloughing staff, we have introduced a wide range of other targeted measures to support businesses and protect jobs, including billions paid in loans and grants, tax deferrals, mortgage holidays and more than £6.5bn injected into the welfare safety net.”