Chancellor 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.
We will continue to provide commentary on policies as they are
announced and as detail emerges.
Paul Johnson, IFS Director, 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.'
