The Tory Chancellor Rishi Sunak announced a replacement to the highly successful Job Retention Scheme (also know as the Furlough Scheme) – but the detail of the government’s new Job Support Scheme means that more than a million British workers look almost certain to lose their jobs when it goes into effect on November 1st.
Back in the summer, as the government were easing Coronavirus restrictions across the country, the Chancellor made the announcement that his widely-praised Furlough Scheme would be ending on October 31st.
The Furlough scheme ensured that businesses who had been financially hit by the ongoing pandemic, as well as those who had been forced to close, would not be forced to lay off workers to make ends meet – with the government guaranteeing 80% of workers’ wages up to a maximum of £2,500 a month.
With the Furlough Scheme due to end on October 31st, and with new restrictions coming into force as cases rise across the country, the government have come under increasing pressure to extend the scheme in order to avoid yet more job losses.
However, rather than engage in yet another embarrassing u-turn, Rishi Sunak decided to devise a replacement scheme – the Job Support Scheme – which he announced today. However, the small print means it is almost certain to fail – and over two million jobs are now severely at risk.
The Small Print
Sunak’s new scheme will see government contributions towards workers’ wages fall from 80% when the Furlough Scheme was announced, to a maximum of just 22% – and workers will now be required to work at least a third of their normal hours to even be eligible for the new scheme.
Furthermore, whilst workers who are eligible for the new scheme will receive at least 77% of their normal pay in total, one crafty detail means it is highly unlikely that many businesses will bother to sign up for the scheme.
Incredibly, the government’s new scheme forces businesses to pay for hours that a worker has not actually worked.
For example, on the scheme, if a worker who is normally paid £2,000 a month worked half their hours, their employer would have to pay £1,000 for the hours they have physically worked, plus £333 that the employee has not worked – with the government chipping in a further £333 to the employee, and the rest of the wage being left unpaid.
However, if the employer simply chose not to enrol workers in the scheme, they would simply have to pay the employee £1,000 for the work they have actually carried out.
And if a business can’t afford to re-employ a worker on half their salary, they definitely aren’t going to able to afford to pay them half their wages plus 33% on top for no extra work – so, without any viable alternative to keep them on the books, many firms will simply lay workers off regardless of the scheme.
Precisely 0% of firms will enrol for the new Job Support Scheme – and here's why:
– Firms must pay workers for ALL hours physically worked
– Firms must then pay workers 33% ON TOP for hours that haven't been workedWhy would ANY business do that? Especially struggling ones!?
— Evolve Politics (@evolvepolitics) September 24, 2020
There is a fatal flaw in the government's wage subsidy scheme.
Why would any employer retain staff on 33% hours, while paying them, out of their own pocket, 58% of their salary?
Why not simply hire part-time staff, without the additional cost? This scheme is destined to fail.
— Dr Moderate (@centrist_phone) September 24, 2020
And employers have to pay 55% wages of somebody who's only on a third of their hours… Quite an ask for struggling firms
— Dan Bloom (@danbloom1) September 24, 2020
Furthermore, with the scheme only available to workers who are able to work at least a third of their hours, employees in industries that are currently closed or severely hit due to coronavirus restrictions – such as nightclubs – will not receive any help whatsoever.
When businesses are already struggling hugely due to the effects of the ongoing pandemic, it is highly unlikely that they will want to pay workers for hours they have not actually worked. And, for businesses who are not taking in any income whatsoever, the Chancellor’s new scheme makes it financially impossible for them to retain workers.
With around 12% of Britain’s approximately 26m employees currently being paid through the furlough scheme, the drastic changes in the Chancellor’s new scheme have put around 3m people at severe risk of losing their jobs.
– There are approx 26m employees in the UK
– 12% (around 3m) are currently on Furlough
– Furlough will end on October 31st
– Firms won't use the new Job Support Scheme because it harms them financially
We are facing monstrous unemployment figures unless the Gov change course.
— Evolve Politics (@evolvepolitics) September 24, 2020
Take a look at the detail. Struggling firms are being asked to contribute extra wages to workers out of their own pocket.
Virtually no firms will use it.
2.6m employees are currently on furlough.
A conservative estimate is that at least 1m of these workers will be laid off. pic.twitter.com/Xf3R4dB5ZA
— Evolve Politics (@evolvepolitics) September 24, 2020
And, whilst answering questions from the media in a televised press conference following his announcement, the Chancellor raised even more concern about his new scheme by refusing to guarantee that unemployment would not reach 4m as a result.
With the pandemic only set to worsen over the winter, and with countries like Germany and France extending their own far more generous schemes until 2022, it seems very likely that the government may well have made a catastrophic miscalculation.
