finance

Sunak under pressure to mend UK welfare system as furlough ends


Rishi Sunak is under mounting pressure to repair the UK’s threadbare welfare safety net as the government’s furlough scheme ends, ahead of a winter in which some 6m households will rely on benefits to pay the bills.

The chancellor’s last-minute overhaul of the Job Support Scheme that starts after furlough ends on Saturday will help some of the 2m people who are still benefiting from the initiative. The JSS will now offer a more generous wage subsidy than originally envisaged where employees work at least a fifth of their usual hours.

But unemployment is still likely to rise sharply, and to spread beyond the ranks of low-paid workers hit hardest initially by the pandemic. Sales have dropped close to zero at many businesses, even if they are legally allowed to stay open, while others are preparing for a long-term decline in demand.

Abi Dunn, a Manchester-based recruiter in the hospitality sector, said even businesses that had been expanding until recently were now laying off core staff, with a clear trend in the last two weeks of redundancies among higher-paid employees in sales, innovation and marketing.

Chart showing in the present crisis, people who fall out of work will struggle to find a new job. Transition rates out of and into employment, between February and September (%)

“These are their A teams, they thought these guys will never go . . . they are now having to start letting these people go,” she said, adding that businesses that had fought to remain open, even at a loss, were now “considering closing down, hibernating until they can see a future”.

The online job site Indeed said two-thirds of a million workers had uploaded or updated CVs in the month before furlough ended — and that many were older or more senior, “suggesting that middle management positions are being lost as well as the junior roles dominated by younger workers”.

Those who fall out of work will struggle to find a new job. Research published this week by the Resolution Foundation, a think-tank, showed that the rate of job losses in recent months has been comparable to that in past recessions, but hiring has been far more deeply depressed. Furthermore, people losing work in hard-hit sectors tend to look for similar roles rather than job-hunting in areas where there are vacancies, the research found.

“The UK jobs market has traditionally been known for its flexibility, its ability to create jobs . . . We are now seeing that hugely slowed down, if not halted,” Carolyn Fairbairn, the outgoing director-general of the CBI business organisation, said at an online event on Wednesday.

“It’s right that as we move towards a more targeted approach to tackle the virus, our support becomes more targeted too,” Mr Sunak said on Friday, justifying the switch from the furlough scheme to the JSS.

This means that millions of workers facing pay cuts or job losses will rely for all or part of their income this winter on universal credit, a welfare system that remains — even after a recent £20 increase in the basic weekly allowance rate — “one of the weakest out-of-work income protection schemes among advanced economies”, according to Alfie Stirling, chief economist at the New Economics Foundation, a think-tank.

About 5.6m households were receiving universal credit payments or working tax credits by August, 1.6m more than in January. The number is set to rise, with low-paid workers who see their wages fall under the JSS eligible for top-ups under universal credit.

Chart showing people losing their work are not job hunting in sectors where there are vacancies. Various employment sectors shown as job searches (% of respondents looking for a job in each sector, Sep 2020) and vacancies (000s, July-Sep 2020)

Mr Sunak argued this will mean many low-paid workers receive about 90 per cent of their usual net income, even while working 20 per cent of hours.

But analysts said this will be true only for certain types of households, even for those on the JSS. For those who have lost their job, universal credit is relatively generous to low-income families, but on average replaces only about a third of lost income — and as little as a fifth for some single adults.

“Lots of people on UC are not on the JSS . . . it is not a top up, it is everything they will be getting,” Mr Stirling said.

The government has resisted calls from charities and unions to make permanent the £20 uplift to universal credit, which will otherwise end next April. But while ministers can defer this decision to next year, they will need to act sooner to protect some groups from a drop in income.

IPSE, an association representing freelancers and contractors, says hundreds of thousands could suffer a “sudden, drastic and unsupportable financial hit” if the government reinstates the so-called “minimum income floor”, which limits benefits for self-employed people on low incomes.

This was suspended at the start of the pandemic, allowing many self-employed people who did not qualify for other forms of government support to claim universal credit, but the suspension ends on November 12.

Many people who claimed universal credit after the first national lockdown will also be nearing the end of the nine-month grace period after which their benefits could be capped. This policy has long been criticised for penalising the disabled, single parents and families in areas with high housing costs.

Homeowners, who do not qualify for housing allowance under universal credit, could also be vulnerable as this weekend’s deadline to apply for payment holidays passes.

There is ample evidence that many households are suffering severe financial hardship. Local authorities are reporting a jump in requests for council tax relief, and the debt charity Stepchange said this week that more people were approaching it for advice — with a growing share of them out of work and in receipt of universal credit.

Karl Handscomb, a researcher at the Resolution Foundation, said that without changes to the generosity of the system — in particular the minimum income floor and benefits cap — “you’ll see a sizeable minority quite seriously struggling.”

“Our welfare system is based around a dynamic labour market where most people are able to get a job in a reasonably short period of time,” he said. “Once you take that away, it creaks and collapses.”



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