IFG: Chancellor's U-Turn will save viable jobs but risks propping up one million jobs with no long-term future

A new Institute for Government report says Rishi Sunak’s Job Support Scheme (JSS) fixes deficiencies with his previous post-furlough scheme plan but will almost certainly waste taxpayers’ money by propping up over one million unviable jobs.

Published today, The Coronavirus Job Retention Scheme: How has it been used and what will happen when it ends? says the chancellor is designing policy at an economy-wide level but the crisis affects sectors in different ways. Varying the JSS by sector would be a better way save viable jobs rather than supporting sectors relatively unaffected by social distancing requirements.

Sunak’s previous plan for when the Coronavirus Job Retention Scheme (or furlough) ended, which he announced in September, was not generous enough for sectors badly affected by continuing restrictions and would not have saved ‘viable’ jobs with a long-term future. The revised plan is almost as generous as the furlough scheme – and means most jobs supported under furlough, including viable ones in affected sectors like hospitality, will continue to be supported under the JSS.

But over one million jobs were being supported by the CJRS in sectors relatively unaffected by social distancing – for example in manufacturing, construction and professional services. Many of these jobs are likely to be unviable in the longer-term if they are still reliant on the CJRS at this stage. But the new JSS will continue to prop them up too.

The current JSS is appropriate for badly affected sectors like hospitality, arts, administrative services and aviation. But for sectors that have mostly recovered or are recovering, a more stringent scheme that does not support jobs with no long-term future would better meet the chancellor’s stated aim of preserving viable jobs.

The paper also finds that

• The CJRS has been successful in retaining employer-employee links. Seven million employees have left the CJRS since the height of the crisis; most have returned to their jobs.
• By mid-September, there were only 2–3 million employees on furlough. Around half were in four sectors: hospitality, arts and recreation, administrative and support services and aviation. These sectors are all heavily affected by restrictions and cannot hope to operate normally while these restrictions are in place. It is right they continue to be supported.
• The remainder were in other, less affected sectors. For most businesses in these sectors, revenue is recovering, yet these workers have still not been needed. Many of these employees are likely in unviable jobs with no long-term future. Overall, this means the share of CJRS expenditure which is ‘deadweight’ – money spent on supporting jobs without a long-term future – is much higher than it was at the height of the crisis.

Thomas Pope, senior economist, said:

“The chancellor’s statement yesterday was an abrupt U-turn. The JSS is now almost as generous as the October furlough scheme. This means the chancellor will achieve his goal of saving more ‘viable’ jobs in sectors like hospitality and the arts, for which the announcements he made last month were never generous enough. But it comes with greater risk that the new scheme will continue to prop up more than a million jobs in relatively unaffected sectors, which are less likely to have a long-term future. The chancellor is trying to design policy at an economy-wide level but the crisis affects sectors in different ways. The best approach would be to target generous support at the worst affected sectors.”