Rishi Sunak’s new job support scheme will not be enough to prevent a wave of redundancies in the sectors hardest hit by Covid-19 restrictions when the furlough scheme ends, warned business groups and economists.
The chancellor, who on Thursday set out measures to help businesses through a difficult winter, announced a more targeted wage subsidy scheme, set to run from November to April, that would give businesses facing another six months of uncertainty “support to bring people back to work and protect as many viable jobs as they can”.
To qualify, employees will need to be working at least a third of their normal hours, which will be paid in full by their employer. For the hours they do not work, the government and employer will each pay a third, with the government’s contribution capped at £698 per worker per month. The parameters will be reviewed after three months.
Large companies applying for the scheme will need to show that their turnover has been affected by the pandemic, but this will not apply to small and medium-sized businesses.
The programme is relatively generous to employees, who will earn at least 77 per cent of their usual wages — close to the level of subsidy under the government’s current furlough scheme. It is far less generous to employers: they will need to pay at least 55 per cent of salaries overall, and in contrast with the furlough scheme, they will now have to contribute towards the hours an employee is not working.
Although business organisations welcomed the measures — which are similar to proposals put forward by the CBI employers’ group — they made it clear that large numbers of jobs would still be at risk in hard-hit sectors such as hospitality, retail or events management. Kate Nicholls, chief executive of UKHospitality, said most businesses could not afford to pay employees for more than the hours they worked.
But Mr Sunak said it was not possible to sustain the same level of support that had been appropriate at the start of the crisis, and he was targeting “jobs which have a genuine prospect of being viable”.
“It is clear that many jobs will be lost over the coming months,” said Paul Johnson, director of the Institute for Fiscal Studies. The think-tank noted that “some jobs, which in the long-term are viable, are not viable in the short term even at part time hours” — for example, sectors such as nightclubs or jobs that relied on sales to city-centre office workers.
About 3m people — 12 per cent of the private-sector workforce — are still on furlough. Recent data from HM Revenue & Customs suggest that most of these are unlikely to be working any hours at present, with relatively little take-up of the option of “flexible furlough” in July.
The Treasury said its internal projections suggested that between 2m and 5m employees could be enrolled on the new scheme — which will be open to all employers, not only those who have used the furlough programme — over the six-month period.
However, its design means that employers are likely to use it only for workers on whom they place a high value.
“It protects good employees — it becomes a bit of a meritocracy,” said Ollie Vaulkhard, founder and managing director of the Vaulkhard Group, who said the chancellor's measures would give him confidence to keep on some staff at the 13 restaurants, coffee shops, pubs and late-night bars the group owned in and around Newcastle.
He added: “Good managers, good waiting staff, good bar tenders, I can keep these guys. They’re going to cost me more money to keep so the judgment has got to be, being callous, who are worth keeping?”
But Tony Wilson, director of the Institute for Employment Studies, a consultancy, said: “In many cases, firms are reducing workers’ hours already, and/or can make people redundant at very low cost . . . We are assuming a lot of goodwill.”
Torsten Bell, director of the Resolution Foundation, a think-tank, cautioned that “avoidable design flaws” would reduce the scheme’s impact, noting that it would cost an employer 33 per cent more to employ two part-time workers on the JSS than to hire one full-time worker.
Mr Sunak countered this, saying there was a “significant financial incentive” to use the scheme in combination with the job retention bonus already announced in July, which will allow employers to claim an additional £1,000 for each furloughed worker they retain until the end of January.
The Treasury also argued that the criticism “makes sense on a spreadsheet but doesn’t reflect the real world”, because employers get value from retaining experienced workers, incur costs when they have to fire and rehire, and will benefit from the scheme’s flexibility, allowing them to change employee’s working pattern week by week as their capacity to operate changes.
However, analysts and campaign groups pointed to other gaps in the support Mr Sunak was offering — in particular, the lack of any fresh support for workers to retrain for new jobs, and the disparity of support for the self-employed workforce compared with employees.
Mr Sunak said self-employed people who had been eligible for previous rounds of income support, and were still trading with a reduced turnover, could apply for a further two grants, covering the six months from November.
However, the level of support — 20 per cent of average monthly profits — is much lower than that paid previously, and hundreds of thousands of freelancers, small business owners and others who were not eligible for the existing scheme will continue to receive nothing.
The chancellor said the level of government subsidy offered to the self-employed was broadly equivalent to that given employees under the new job support scheme.
Andy Chamberlain, director of policy at IPSE, an association representing independent professionals and the self employed, said it was “woefully inadequate”, given the “drastic financial hit” many had taken in the last lockdown.
Additional reporting by Chris Tighe in Newcastle
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