UK chancellor Rishi Sunak on Thursday presented a package aimed at protecting jobs “through the difficult winter months”. It is an essential step. The recent resurgence of coronavirus has led to new restrictions that will limit not only freedom of movement, but the economy’s capacity to grow — just when the Treasury is set to remove some of the labour market support put in place early in the pandemic.
The centrepiece is a policy to ease the blow of the closure of the furlough programme, under which the Treasury originally covered up to 80 per cent of workers’ salaries, at the end of October. What replaces it is a Job Support Scheme loosely modelled on Germany’s system of Kurzarbeit, under which staff are compensated for periods when they work fewer hours. The scheme will enable employees working at least a third of their normal hours to be compensated for up to two-thirds of the loss of income, with the cost split between government and employer. All smaller businesses can apply, along with larger ones that have seen revenues fall.
The chancellor had, until as late as last week, been veering away from an extension of European-style support for the labour market beyond October, instead preferring US-style measures that would focus more on compensating and retraining workers. Now he will do both. It is to Mr Sunak’s credit that he has recognised that, without furlough and with virus cases shooting up, the hit to the UK economy if the Treasury had not changed tack would have been too harsh for people and businesses to bear. The government’s new restrictions have already hit morale. Still, it is wise to wean the economy off a furlough scheme, which — though necessary when it was introduced — now threatens to do more harm than good in the long term by keeping people in jobs that are no longer viable.
While the package will soften the pain, it may yet prove insufficient. Since the start of the pandemic, the chancellor and his team have been the star performers in a government that has mishandled much of its response to the pandemic. The risk is that if Downing Street’s latest restrictions fail to mitigate the rise in cases, then Mr Sunak will come under pressure to offer far greater levels of support.
The Job Support Scheme is far less generous than furlough. It drastically reduces the government’s contribution from up to 80 per cent of people’s wages to a maximum of 22 per cent. That will crystallise difficult decisions for employers on whether to fire staff — especially when companies that keep workers on part-time under the new scheme will pay them more, net, per hour than before the pandemic. The £1,000 job retention bonus will be a cushion but only until January. A substantial rise in unemployment is inevitable, though the chancellor has committed, at least, to maintain universal credit at its current enhanced level.
The Treasury has also slashed support for the UK’s 5m self-employed workers, set first at 80 per cent and then 70 per cent of trading profits, to 20 per cent — which could provoke a backlash from government backbenchers. Those who work in industries most exposed to restrictions, such as the performing arts and sport, will be angered by the lack of additional support to sectors such as theirs, which will become viable again, but only once the coronavirus is contained.
Mr Sunak wants his package to cover the next six months, tiding the UK over until the spring. By then, the hope is that a vaccine will be available, or the caseload lower. But a long, cold winter lies ahead. If infection rates worsen, these measures cannot be the final word.
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