The flaws in Rishi Sunak’s furlough scheme replacement

Before announcing his new package of employment support in parliament on Thursday, Rishi Sunak held a photo call on Downing Street flanked by the head of the TUC and the CBI, creating a powerful symbol of broad support for his scheme from unions and businesses leaders alike.

But in the hours after the parameters of the scheme were made public, it has become clear that satisfaction with the scheme is far from universal – and that it contains some large and worrying holes.

Here are the biggest flaws so far identified in the chancellor’s Job Support Scheme.

No support for staff of shuttered businesses

The new scheme is only available to firms that bring back employees who are working at least a third of their normal hours. This is a fundamental difference from the furlough, under which support was available for all workers.

The upshot of the new scheme is that those businesses that remain entirely shut down because of public health restrictions – night clubs, some theatres and arts organisations etc – will have zero access to public support to keep workers on from 1 November when the furlough ends.

Pubs, cafes and restaurants that rely heavily on city centre office workers for custom might also have no hours at all to offer many staff now that people have been instructed to work from home again.

The chancellor in his Commons speech said the new scheme is designed to keep people in “viable” jobs.  

The inescapable implication of this, along with the lack of support for such firms, is that the Treasury has essentially decided that these jobs are unviable and should no longer be protected.

Financial incentives to cut jobs rather than hours

Despite the talk of the new scheme being a UK-version of Germany’s kurzarbeit, or short-time working scheme, there is a crucial difference.

The German scheme does not require employers to contribute to paying for the hours that the employee does not work. The UK scheme requires businesses to cover a third of those costs.

The upshot, calculates the Resolution Foundation think tank, is that many firms with reduced business will find it more financially advantageous to simply employ one worker full time rather than two workers part time.

If the purpose of the scheme is to encourage firms to retain as many workers as possible, this represents a major design flaw.

For some industries this might be less of a problem. 

Ben Fletcher of MakeUK, which represents manufacturing employers, says that the new subsidy scheme helps firms that want to hold on to skilled workers through a period of weak orders.

“We would obviously have preferred a scheme where the employers’ contribution is lower but the difference in manufacturing and some other sectors is specialisation,” he says. 

“Where you have people with qualifications and training the inter-changability of staff is much lower. Even if you’ve only got an order book that is 30 per cent full you still need all your staff coming in and this scheme helps you subsidise those costs.”

But for industries with many lower skilled or unskilled workers such as retail and hospitality the new scheme provides no real financial incentive to spread the available work around as many employees as possible. 

“The sad reality is that those most likely to miss out will be people with less secure contracts, shorter service, often younger workers, the lower paid and those in non-unionised workplaces,” predicts Tony Wilson of the Institute for Employment Studies.

A jobs cliff edge in January

In July the government said firms that brought workers back from furlough and kept them employed into the new year would be eligible for a one-off £1,000 bonus per worker in January.  

That programme does provide a financial incentive for firms to hold on to staff over the coming months, despite the disincentives in the new scheme this week.

The problem is that once these bonuses have been received by firms, their financial incentives to keep those previously furloughed workers on after that disappears.  

Resolution points out that this effectively creates the risk of another cliff edge for jobs in the new year, a time when the labour market is likely to still be in deep crisis because of ongoing coronavirus health restrictions.

No incentive for new hiring  

The crisis in the labour market is not just the prospect of mass redundancies, but the fact that companies are not hiring because of the huge uncertainty in the economic outlook.

This is tough on school leavers, new graduates and those who have lost their jobs. In a normal labour market most would find a new job relatively quickly. But vacancies advertised by firms have collapsed.

Labour market experts argue that the government should be looking not only at ways of incentivising companies to hold on to staff, but to take on new staff too, perhaps by temporarily cutting employer National Insurance contributions for new hires.

“We need to restore confidence and get hiring going – by making it cheaper, easier and safer for firms to take new people on,” says Tony Wilson.

But there was nothing on this front from the chancellor. 

Nothing new on training and retraining

If people are to be subsidised to work shorter hours the question arises as to what they should be doing in the hours when they are not working?  

Many argue the government should be offering workers training so they can enhance and update their skills. 

“To avoid wasting those unworked hours, ministers should work with unions and business to offer high-quality retraining so that workers are better prepared for future opportunities,” says the TUC.

But there was nothing new on training in the chancellor’s broader package.

Furthermore, if the chancellor believes many jobs have been made unviable because of changes in the shape of the UK economy, many argue that it is beholden on the government to provide a viable alternative for the people who held them, meaning a major new offer on retraining. 

The Treasury did announce some new training schemes in its Plan for Jobs over the summer, but critics say that the scale of the challenge has grown far larger and even more urgent since then.

No commitment to increase benefits

Another inevitable consequence of the chancellor’s decision that some jobs are unviable and should not be protected is that more people,  through no fault of their own, will move onto Jobseekers’ Allowance and Universal Credit.  

This will mean a big drop in living standards for many. For someone on £20,000 a year the furlough covered 80 per cent of their wages. But when they are made redundant Universal Credit will only replace around a third of their former take-home income, according to calculation by the Resolution Foundation. 

Furthermore, the system is on course to become less generous. The government increased benefits in March by around £20 a week but this uplift is due to end in March 2021 when nobody expects the jobs market to be anywhere close to functioning normally.

Despite many calls for the government to commit to an extension of the enhanced safety net, the chancellor conspicuously failed to do so this week. 

It was, in the words of the Joseph Rowntree Foundation, “a missed chance to extend the lifeline”.