Chancellor steps up efforts to avert mass unemployment

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Chancellor Rishi Sunak has long insisted he would not extend his job retention scheme, which has been paying much of the wages of people unable to work in the coronavirus crisis, beyond its October 31 expiry date.

Last month he unveiled his new job support scheme, which would take effect on November 1 and be much less generous than the furlough programme, partly because he was concerned he was funding employment that had no long-term future.

But on Thursday, amid intensifying concern about the second wave of coronavirus and rising unemployment, Mr Sunak announced changes to the scheme that mean it will come close to resembling the furlough programme.

“These changes mean that our support will reach many more people and protect many more jobs,” he said.

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Mr Sunak’s revised scheme means companies have a strong incentive to retain workers, notably those on low wages, rather than make them redundant. “We’re literally paying you to keep them on,” said one ally of the chancellor.

Such has been the rise in Covid-19 cases that Mr Sunak has had to alter his post-furlough programme arrangements three times in four weeks.

On September 24, he unveiled the job support scheme, with the government agreeing to pay a proportion of company employees’ wages who were working at least one-third of their normal hours.

Then on October 9, as the government prepared to outline its new three-tier system of restrictions for England, Mr Sunak announced that businesses forced to close in the worst affected areas would have two-thirds of the wages of their employees covered by the scheme.

The latest revamp outlined by Mr Sunak on Thursday roughly doubles the scheme’s generosity, with two big changes that should safeguard jobs, according to experts.

First, companies can now claim under the scheme when employees are working only 20 per cent of their normal hours, or one day a week.

Second, companies have had their contribution towards employees’ wages for hours not worked cut from 33 per cent to 5 per cent.

In total, it means that while companies would, under the original terms of the scheme, have had to pay 55 per cent of the wages of an employee working the minimum required hours, they now only have to cover 24 per cent for someone operating 20 per cent of the time.

The reduction in employers’ costs of retaining workers is offset by the scheme covering a bigger proportion of their wages.

Add in the government’s job retention bonus, which gives employers £1,000 for each previously furloughed employee who is retained until the end of January and, for many workers, especially the low paid and part-time, the costs of retaining them from November to February will be zero.

Paul Johnson, director of the Institute for Fiscal Studies, a think-tank, said the “very big” alteration to the scheme would “change the incentives . . . a lot” for employers, encouraging them to keep people in their jobs. The scheme was now rather similar to the furlough programme, he added.

Apart from the second wave hitting the UK, the Treasury was also influenced by the fear of a surge in unemployment after the end of the furlough programme.

Officials had read a carefully researched report by the New Economics Foundation, a think-tank, which warned that 2.2m jobs were at risk under the original version of the job support scheme.

Partly, this was a result of a design feature: the Treasury wanted to force people without viable jobs to look elsewhere for work.

But as Covid-19 cases rose, the number of people likely to be made redundant was too high to stick to Mr Sunak’s tough-love message.

Alfie Stirling, chief economist of the NEF, said the chancellor’s latest changes were generous and likely to protect most of the jobs at risk, although 450,000 were still in danger.

Changes to the job support scheme could save 1.75m jobs

He added that while Mr Sunak had addressed concerns for people still employed part-time in struggling businesses for now, a need remained to help those reliant on welfare benefits and out of work.

“I don’t see why those reliant on social security should suffer any more than others,” said Mr Stirling.

Mr Sunak’s additional support for employment inevitably comes at a cost to public finances.

The Treasury did not publish estimates, but said the rough cost of the scheme would be £1bn for every 2m applicants per month. Alongside a doubling of the generosity of grants for self-employed people, and new support for businesses in areas under tier 2 restrictions, the best calculation of the total cost of the package announced on Thursday was about £11bn, according to officials, although they added this was highly uncertain.

Waterfall chart showing the revamped job support scheme means public borrowing is set to exceed £400bn. Sources of change in forecast for public sector net borrowing in 2020-21 (£bn)

This sort of sum would normally be an extremely large change to the government’s budget, but not in a year when it has already spent more than £200bn on support for companies and households.

On the basis of the Office for Budget Responsibility’s latest tax forecasts, the deficit would be over £400bn in 2020-21, representing more than 20 per cent of national income, if the revenue and spending estimates prove accurate.

Mr Sunak presented his revised job support scheme as the right way “to respond to changing circumstances”. Few think this is likely to be the last time he has to come to parliament with additional coronavirus support.

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