It was inevitable that the chancellor, Rishi Sunak, would eventually have to act to avert job losses that could decimate entire sectors of the economy. Even before the prime minister’s announcement this week of 10pm curfews and a plea to work from home for six months, it was clear that as many as 3 million jobs could be at risk when the job retention scheme ended in October.
The job support scheme Sunak set out on Thursday does the right thing: it continues to support the incomes of workers and businesses, particularly in the worst-affected sectors of arts and nightlife, leisure, hospitality and retail, rather than leaving their future entirely down to market forces. Many of the businesses affected were stable or even growing before the pandemic – it is social-distancing measures and the slump in GDP that has brought them to their knees, not a lack of talent or success. And while some were arguing the scheme had to end to allow for adjustment to a “new normal” after the pandemic, this was always too large a risk to take when the future was so uncertain, and the price of mass unemployment so high.
The policy aims to protect jobs through subsidising employees to work reduced hours rather than allowing mass layoffs to occur. It’s an approach that has been successful in other countries, such as the Kurzarbeit in Germany. However, it is still a relatively new approach for the UK. The main test of the policy will be whether it can support the companies and individuals worst-affected by the pandemic. Here there are two large concerns.
It is not clear that this scheme will go far enough to incentivise employers to keep employees in work. It still requires a sizeable employer contribution to wages (a third of non-working hours in addition to hours worked), plus non-wage costs such as employer national insurance and pension contributions. The £1,000 job retention bonus employers can also benefit from to some extent mitigates this, but it ends in January, creating a new cliff-edge, and only applies to employees already on the job retention scheme. It would be more effective to subsidise working hours (for example by 10%) as well as non-working hours, offering a direct financial incentive for employers to keep employees on. Or even simply to increase the newly proposed government contribution for non-working hours. Either would easily be paid for by scrapping the bonus.
The requirement for an employee to be working a third of normal hours, while a good test of the viability of the business, could exclude organisations that are almost entirely unable to operate, such as those in the arts and entertainment sector – surely not the outcome the chancellor intended.
And while the existing self-employment grant was extended on similar terms and conditions as the jobs support scheme, the future is unclear for people who were previously eligible for support under the furlough scheme – those who were extremely vulnerable to coronavirus or with additional caring responsibilities for children or vulnerable adults. Alongside some disabled people, these people – overwhelmingly women – are most likely to have been made redundant in this crisis. Many of these job losses could undoubtedly have been avoided had the scheme come sooner.
Even with this new scheme, unemployment levels are likely to be higher for years to come. So there were three major omissions in today’s package: retraining, which will be needed to help people move into new sectors when adjustments do come; investment in direct job creation and support for hiring, which is needed while job vacancies are perilously low; and universal credit, where the £20 emergency increase must also be extended.
Unemployment could still rise by more than 1 million before the end of the year, with many more people forced to work out how to live on less than £100 a week. Withdrawing the increase and freezing benefits, as the chancellor has warned he might do, would dangerously widen the gap between incomes for those on out-of-work benefits and average wages. Without action on these, we will not be much further forward in six months’ time.
It is to be hoped, though, that Thursday’s plan is a reminder that something positive can emerge from these dark times. We have seen acceptance of government intervention in the economy to prevent unnecessary hardship in a way that was almost unthinkable until recently. For this to be sustained, this scheme must be a success. If it is, it could offer a clear precedent: that, in periods of future disruption or recession, there is an alternative to a laissez-faire acceptance of widespread unemployment. The stark contrast between the protection offered through this kind of scheme and the pitifully low levels of income replacement offered by our benefits system, however, should not be lost on us.
• Clare McNeil is an associate director at IPPR and head of its Future Welfare State programme