Coronavirus: Are firms gaming the government’s furlough scheme?

The initial criticism of the government’s plan to support companies and jobs in the face of the economic hurricane created by the lockdowns to deal with Covid-19 was that it didn’t go far enough.

Now we are hearing what sounds like the opposite complaint – that it goes too far.

Julian Knight, the chair of the Digital, Culture, Media and Sport Committee, has criticised some Premier League clubs for accessing the government’s Coronavirus Job Retention Scheme to furlough some of their non-playing staff.

Tottenham, Newcastle and Norwich have also used the scheme, in which the government will pay up to 80 per cent of the wages (up to £2,500 a month) of staff for three months.

“It sticks in the throat,” said Knight, a former personal finance journalist for The Independent.

“Highly paid football players ... should be the first ones to ... sacrifice their salary, rather than the person selling the programme or the person who does catering or the person who probably doesn’t get anywhere near the salary some of the Premier League footballers get.”

Others have noted the fact that football clubs with tens of millions of pounds of TV broadcast revenues are availing themselves of the scheme while hundreds of thousands of small businesses warn that they are at risk of going bust because the support from the scheme will not come quickly enough to prevent them running out of cash.

So the argument seems to be twofold.

First, that wealthy football clubs are not the kind of private sector firms that the government should be subsidising at this time.

Second, that businesses like this should be using their resources to ensure that workers carry on receiving their full wages, rather than only 80 per cent of them – that there should be more intra-firm redistribution in these tough times.

Is any of this fair?

Firstly, it’s worth recognising that the Treasury deliberately made the jobs subsidy scheme universally available to any company that pays it workers through “pay as your earn” (PAYE) tax systems, rather than attempting to effectively means test individual firms in order to access it, something that would have slowed down its delivery.

Ministers and civil servants traded off efficiency for speed.

Further, the designers reasoned that firms would be unlikely to furlough workers to claim the subsidy if they could possibly be economically productive in this crisis.

Secondly, regarding intra-firm redistribution, the Treasury did suggest that firms top up the wages of furloughed workers to 100 per cent if they could afford it.

But it would have been impossible to mandate this without undermining the purpose of the overall scheme, which was to keep as many companies as possible in business.

The job subsidy is certainly not perfect. The Institute for Fiscal Studies has pointed out that it creates a strong incentive for companies to furlough workers entirely when it’s possible they could have made use of staff by merely reducing their hours.

And the IFS’s director Paul Johnson has also noted that some owner-managed companies might be able to abuse the scheme.

Yet these criticisms, however valid, must be set against the reality that ministers had to act fast and that minimising inefficiency would have meant a slower delivery of support at a time when hundreds of thousands of otherwise viable businesses simply cannot afford a delay.