Chancellor Sunak has announced that, as the Job Retention Scheme (JRS) winds down at the end of October, it will be followed, for the next six months, by a new job support scheme which subsidises the wages of employees working at least a third of their normal hours. This is reminiscent of schemes that have existed for some time in countries such as France, Germany and Italy, and indeed of the ‘flexible furlough’ component of the JRS that has been available since July.
This is a much less generous scheme than the furlough scheme which it is replacing. It will also be much cheaper – though rather remarkably the Treasury has as yet given no indication of actual costs. In October employers have to pay just 20% of an employee’s normal wages and that employee need not work at all. From November support will only be available where employees are working at least a third of their normal hours. For an employee working a third of normal hours from November the employer will have to pay 55% of the normal wage costs.
Employees on the scheme will continue to be treated generously. They will receive 77% of their gross salary for doing a third of their normal hours. For most that will translate into well over 80% of their net pay. There will also be more help for the self-employed, likely in the form of another grant; although details are yet to be announced.
There are good reasons to be sympathetic to the government’s response. Short-time work schemes have been shown to be effective in other countries at achieving precisely the goals the government has in mind: encouraging employers not to shed jobs during periods of temporarily depressed demand or temporarily inflated costs, thus insuring workers against hardship and enabling business to be resumed more easily once demand recovers.
There remains the inescapable trade-off of how to help long-term viable jobs weather the storm without keeping people locked in unviable jobs. The temptation to protect existing employment ties is obvious. But in some cases, breaking them will be the best option from a bad bunch. Some jobs will not come back properly for some time – if ever – and sadly many people would be better served in alternative work than continuing to put their careers and skill development on ice and only delaying (rather than avoiding) hardship.
There are also serious challenges.
Some jobs which in the long-term are viable are not viable in the short term even at part-time hours. This is currently true as a direct result of restrictions in sectors like nightclubs, and that list of sectors may ebb and flow – and vary across of the country – in line with social distancing restrictions. It is also likely to be true for many jobs which, for example, rely on city centre office workers for their sales. When the furlough scheme expires that is likely to translate into sharply rising unemployment.
Monitoring and fraud prevention will be very difficult. Under the scheme the government will pay an employer for a third of the hours not worked by the employee relative to their normal hours. But it is impossible for the government to know how many hours people are really working. Other countries who run similar schemes have established protocols in place to try to minimise these issues and the government should try to learn as much as possible from them, but it will be particularly difficult to do this from a standing start.
The Chancellor announced a series of other measures which will also help businesses.
Paul Johnson, Director of IFS said: "The new job support scheme represents a significant new intervention from government to support jobs through the crisis. But it is significantly less generous than the furlough scheme it replaces, though remarkably the Chancellor provided no indication of the likely cost of the scheme. He is trying to plot a difficult path between supporting viable jobs while not keeping people in jobs that will not be there once we emerge from the crisis. With employers now having to pay at least 55% of the normal wages of their employees it is clear that many jobs will be lost over the coming months."
IFS will continue to provide commentary on policies as they are announced and as detail emerges.