The government would save taxpayers’ money and 1.4 million people might keep their jobs if the wage subsidy for firms using the coronavirus short-time working scheme was increased, Rishi Sunak has been told.
The New Economics Foundation (NEF) said as many as 2.7 million people will be at risk of redundancy this winter when the government winds down the furlough scheme next week and replaces it with the job support scheme (JSS), the plan to protect people in “viable” jobs, which the chancellor announced last month.
The thinktank said as few as 500,000 of these jobs would be saved by the new scheme of wage subsidies, which offers firms a government contribution to the wages of staff working shorter working hours during the Covid crisis.
Under the government’s plans, the Treasury will cover a third of an employees’ wages while they are off work, and their employer has to contribute the same amount to get the state support, maintaining the worker’s pay packet at 77%.
However, the NEF said cutting employer contributions from 33% to 10% would have a dramatic effect, helping to save as many as 1.4m jobs – almost triple the number of jobs it estimated the JSS would support.
It said failure to take such steps would result in 2.2m job losses this winter, with most redundancies falling in the accommodation and food sector, whereas many as 360,000 jobs could miss out on support.
Experts have said the JSS offers little incentive to companies to retain workers, because of how much they have to contribute to obtain government funding. In most cases, the NEF said, it would be cheaper for an employer to make one worker redundant while keeping a second on 100% of their hours, rather than keeping both on 50% and using the scheme to top up their wages.
Frances O’Grady, the general secretary of the TUC, who worked with the Treasury to develop the job support scheme and joined Sunak on the steps of Downing Street to launch it, said urgent changes to the scheme were needed as the Covid emergency had worsened.
Responding to the NEF research, she said: “With restrictions tightening, it’s clear that we need a more generous short-time working scheme for businesses hit by reduced demand. Reducing employer contributions could help save many more jobs. Ministers must act on this now and increase support for workers in businesses forced to close, and for the self-employed.”
Sunak, faced with mounting pressure to raise the level of job support as the government imposed tough local lockdown restrictions across the north of England, announced an expansion in the JSS earlier this month to protect workers at companies forced to close by the new controls.
The expansion of the JSS involves the government paying two-thirds of workers’ pay and removes the requirement for company contributions – in effect a new furlough scheme from November for firms in tier 3 areas.
However, the NEF said businesses facing tier 2 controls would also have reduced demand for their goods and services, and that high levels of employer contributions to use the JSS would trigger a surge in unemployment. It said cutting the level of employer contribution would require the Treasury to contribute more, but that would be cheaper for the public purse than allowing millions of people to fall out of work.
The research showed the cost to government of making up the difference to ensure employee wages were protected at 77% would, on average, be just £200 a month for each worker – significantly less than the costs of unemployment benefit, which started at £410 a month for a single adult before support for housing costs.
Alex Chapman, senior researcher at the NEF, said: “The present scheme was designed for a period of recovery, not a second wave, and it will not meet the chancellor’s stated aim of protecting ‘viable’ jobs. The good news is that there is a simple fix.”