Sunak has patched up his Covid support package – but only until January
With the health of the economy, as with our own, by the time you start feeling the pain, it is often already too late. Yesterday Rishi Sunak finally acted on the pangs induced by the flaws of his second wave of job support programmes. But had he offered bold support much earlier, many more jobs would have been saved and the prospects for the economy would be much improved. The patchwork solution that we’re now left with will alleviate much suffering, but it is still leaving many behind.
Sadly, the problems with the post-furlough job support schemes were foreseeable, but weren’t addressed in time. At the beginning of the pandemic, Sunak was praised for his bold and popular furlough scheme. But his jobs support plan for winter was decisively more cautious.
Until late September, Sunak was resisting calls for any additional job support after the furlough scheme wound up. Presumably, that was because he hoped the pandemic would remain subdued over the winter and because new jobs would miraculously be created. But then, as the number of infections started rising again, he belatedly changed tack and introduced a new job support scheme.
It was a policy that wouldn’t have been successful in preserving jobs even if we had been on the road to a roaring recovery. There was a huge flaw in the previous scheme – it asked employers to effectively pay for doing the right thing. In an attempt to reduce costs for the Treasury, it asked firms to pay a significant share of workers’ wages when keeping them in employment on a part-time basis. Employers had to pay a third of the wages for non-worked hours. This meant that, in practice, it was cheaper to keep one worker on a full time contract paying 100% of their wages, rather than two workers on reduced hours paying 33% more in total. This went against the central premise of Sunak’s scheme, encouraging work-sharing to preserve jobs while the pandemic was still pervasive.
No wonder that businesses whose footfall was going to be hard hit by tier 2 and tier 3 restrictions cried foul. The standoff between Andy Burnham and Sunak would have been just the tip of the iceberg of resistance had the chancellor not shifted course. The Institute for Public Policy Research estimated that 1.8m viable jobs would have been lost under the old scheme. The chancellor’s move to finally reform it yesterday addresses a big chunk of the design flaw, meaning that four fifths of these jobs could now be preserved.
However, more than 300,000 viable jobs could still be lost under the new scheme. The first reason for this is that many workers do not qualify for the important, but poorly targeted, job retention bonus – a one-off reward for keeping on workers at the beginning of January. It is indiscriminately given to all firms that ever used the furlough scheme, and not necessarily to those that need it most.
Say a firm is newly hit by local lockdowns in a way it wasn’t before. It doesn’t qualify for the bonus. What about a worker who started a new job in summer and is now affected by the lockdown? They don’t qualify. A woman in a part-time job (women are much more likely to work part-time then men), and earns £600 a month? She, too, fails to qualify. A follow-up scheme – such as a part-time work subsidy – could address this issue. This would reimburse firms for a share of the wages that its employees work part-time (in addition to reimbursing workers for hours not worked) and it could reach a broader set of workers.
Second, the announcement on Thursday came way too late. Many firms had already made tough calls and were forced to let people go because of insufficient support. At the beginning of October more than one third of employers said they would have to make staff redundant by the end of the year.
Moreover, the job support saga is not over yet. In fact, there is little respite before we arrive at the next cliff edge at the end of January. The job retention bonus will be given in one big pay-out and once that is made a large incentive for retaining workers will be gone. If the pandemic is not over by that time (as is likely), then a new wave of layoffs could ensue. And those falling into unemployment are faced with one of the least generous benefit systems in the rich world. For example, a family where the single earner falls out of work can expect to lose about half of their income – a dramatic fall in times of huge uncertainty.
It need not be like this. By being bold and being brave Sunak could provide businesses and workers with the certainty they need to get through winter. He needs to outline what his plans are to deal with the January cliff edge, devising a follow-up to the job retention bonus that benefits a broad range of workers. He needs to provide a better deal for those – especially families – who are falling into unemployment due to the crisis. And in this autumn’s spending review he needs to provide a sufficiently large stimulus to stabilise the economy and public services, until the pandemic is over.
Yes, the pandemic may take a different turn, and new, forward-looking policies might end up too generous. But the risk of this is much smaller than the prospect of once again waiting until the final hour, when most businesses will already have been forced into tough decisions. Other countries such as Germany, Japan and the Netherlands long ago extended their (more generous) schemes far into the new year. They are not perfect, and neither can they be, but they are providing businesses with certainty. Rishi Sunak has the opportunity to do so, too. For the next part of this ongoing crisis, the government should be bold and brave – and act before it hurts.
Carsten Jung is a senior economist at the Institute for Public Policy Research’s Centre for Economic Justice
