Sunak’s measures needed to protect workers and support the recovery - they don’t
28 Sep 2020
Tony Wilson, Institute Director
This comment piece was originally published on the Prospect website on 25th September.
The chancellor had a difficult balance to strike yesterday. If the intention of the Job Retention Scheme in March was to protect workers, and July’s “Plan for Jobs” was designed to secure the recovery, yesterday Rishi Sunak needed to do a bit of both: to give real help to those firms at breaking point after the tightening of restrictions, while giving confidence to others to keep hiring and creating new jobs in the future. In the end though, the intervention was inadequate on both counts.
There were positives in the “Winter Economy Plan”: the further forbearance on VAT payments and business loans will give struggling firms some much-needed breathing space, while the continued cut to VAT in hospitality and tourism will offer some relief over winter. However the centrepiece announcement yesterday, of a new “Job Support Scheme,” appears likely to fall short of providing the help that many struggling firms, and their furloughed workers, are likely to need.
Unlike “short-time working” schemes in other countries, where the employer pays for the reduced hours that their staff work and the state tops this up, under the new Job Support Scheme the employer will pay both for the hours that people work and some of those that they don’t. So if an employee works one third of their normal hours the employer will pay 55 per cent of their wage, and if they work half the employer pays them for two thirds. Far from giving firms relief, in many cases it will cost them money.
Undoubtedly some companies, particularly larger ones, will want to sign up. If you have a long-serving workforce on permanent contracts with fixed hours, then the cost of putting lots of your staff on the support scheme may well be lower than the cost of making some of them redundant. But if you have a shorter-serving workforce, can vary or negotiate lower hours without this scheme, and are struggling to make it to Christmas, then why would you do it? Why put two staff on half their hours and pay them two thirds of their salary each, if it would cost you less just to keep one on? Inevitably, those firms that will most need relief will be the ones least able to afford to take it up. For them, yesterday’s announcement will make their discussions with staff more rather than less difficult, and their decisions harder.
The sad reality is that those most likely to miss out will be people with less secure contracts, shorter service (often younger workers), the lower paid and those in non-unionised workplaces. Our research has found that similar issues existed in the Job Retention Scheme, with workers refused furlough or told they were not eligible, but what were cracks in the last scheme could become gaping holes in its successor.
Our reliance on the generosity of employers rather than the generosity of benefits also stands in stark contrast to the situation during the last recession, where tax credits provided a lifeline to many workers who lost hours and earnings. After a decade of cuts to welfare, the majority of which fell on working households, Universal Credit just will not be able to do the same. These gaps and inadequacies in our safety net present a public health as well as a social and economic risk, with the latest research finding that as many as four fifths of those who develop symptoms for Covid-19 do not self-isolate, most commonly because of risks to their incomes and a need to work. The furlough scheme papered over these problems during lockdown: we should have fixed them yesterday.
Many of the problems with the Job Support Scheme could have been avoided if the government had announced either a more conventional short-time working scheme—where the government tops up employee salaries for firms that can demonstrate they need the support—or a wage subsidy or business grant scheme to provide relief directly to firms. Given the range of voices calling for either or both of these measures, from across the political and economic spectrum, it is hard to understand why the government did not just announce something simpler, clearer and better evidenced.
It is also hard to understand why yesterday’s economic plan included no measures either to support new hiring over the next six months, or to help those out of work or at risk of redundancy to retrain. We did not enter a second lockdown this week—the economy is still open, and many employers want to create new jobs. However, by signalling that firms and workers are in for another six months of disruption we have added hugely to economic uncertainty, which had already been exacerbated by the prospect of an ever-harder Brexit in three months’ time. So as Jonathan Portes and I have written before, our task is not just to protect jobs, we also need to support the creation of new ones. We need to restore confidence and get hiring going—by making it cheaper, easier and safer for firms to take new people on; by providing more support to retrain; and by funding the direct creation of jobs in the green economy, caring and public services.
The fact that there were so many gaps in yesterday’s plan likely reflects more than anything that it was put together in a hurry, in response to Tuesday’s new restrictions. In the summer, the chancellor took a gamble that we could largely withdraw the demand-side support for jobs and focus on supply-side measures as the economy reopened. Indeed until last week, there was still a chance that gamble would pay off—with the latest jobs figures showing that at least half of those who had been on furlough had now left it, and that this had not (yet) translated into any significant impact on employment.
However, all of the signs are that we are now facing a long winter. Our analysis suggests that we will see a wave of redundancies that will far exceed what we witnessed in the last recession; unemployment looks set to more than double; and by next year there will likely be around a million people long-term unemployed. So I suspect that yesterday will not be the last emergency statement or economic plan. And next time, we will need to do more—to help viable firms, protect low-income households and support the recovery.
Any views expressed are those of the author and not necessarily those of the Institute as a whole.