Think tank that first proposed a work-sharing scheme in August welcomes move to protect viable jobs, but warns of flaws in government scheme
The progressive think tank IPPR responds to the Chancellor’s statement announcing a new Job Support Scheme, which is similar to proposals it made in August, but does not go far enough to protect viable jobs.
Carys Roberts, IPPR Executive Director, said:
“The Chancellor today finally responded to calls from MPs, business and unions, and to evidence from organisations like IPPR, by introducing a replacement for the Job Retention Scheme.
“But through its design it does not support businesses enough to prevent layoffs, and will be cold comfort to firms that are fundamentally viable but can’t operate at all due to local or sector restrictions.
“What’s more, many at home will be asking why this government has repeatedly waited until the final hour to give businesses and families certainty in this time. Delay will have cost thousands of jobs.
“This was billed as a winter economic plan, but with the Budget now on ice, big questions remain about the Chancellor’s next steps. The economy is in its deepest recession in generations, and he urgently needs a plan for new, green, well-paid jobs.
“He also mustn’t forget the millions who have lost hours or are already out of work: he must invest in universal credit to prevent poverty and boost spending.”
Authors of the IPPR report Rescue and Recovery, published in August offered their expert analysis of the new plans to support jobs and businesses.
On the new Job Support Scheme Clare McNeil, IPPR Associate Director, said:
“Choosing to continue to support the incomes of workers and businesses through the hugely uncertain next six months is the right decision. However, getting the design of the scheme right will be imperative to avoid layoffs, and the plan has three major flaws.”
- It may not go far enough to incentivise employers to keep staff in work because it still requires them to pay much of their wages (33 per cent of non-working hours in addition to hours worked), plus non-wage costs such as employer NI and pensions. For example, under the government’s scheme, an employer would contribute about £140 more per month for an average worker than under the IPPR and TUC proposals, and the average worker would receive about £100 less per month.
- The Job Retention Bonus partly mitigates this but ends in January, creating a new cliff edge – and it only applies to employees on the current Job Retention Scheme. A direct financial incentive in the form of a subsidy for working hours, as IPPR proposed, would be more effective.
- The requirement to be working a third of normal hours, while a good test of viability for some businesses, could exclude some organisations almost entirely unable to operate. The fact that all SMEs are eligible however does mean that these businesses should be protected in the event of local lockdowns
She added: “However the scheme is more generous than expected in allowing any SME to be eligible for support, while large businesses have to demonstrate that their turnover has been hit by Coronavirus.”
On new measures to support businesses directly, Carsten Jung, IPPR Senior Economist, said:
“Today's announcement extends a much-needed financial buffer for the many businesses still struggling with low demand. Every tenth firm says it’s at risk of insolvency, as footfall is still far below pre-crisis levels. Loosening loan terms and extending tax breaks is the right way to help these firms through the winter.
“But an opportunity has been missed to boost the economy. Investment into new jobs in future-proof sectors is still only about a tenth of what estimate is needed.
“The chancellor rightly said there should be conditions that prevent dividend payouts by firms that receive government funding. This is the right thing to do to ensure firm owners aren’t profiteering. But the conditions should go further and include good governance criteria, such as committing to climate targets.”
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Carys Roberts, Clare McNeil and Carsten Jung are available for interview
NOTES TO EDITORS
- In August IPPR published its proposals for a Job Retention Scheme replacement based on short-time working principles – a Coronavirus work-sharing scheme. The report by Clare McNeil, Carsten Jug and Dean Hochlaf is available to download here: https://www.ippr.org/research/publications/rescue-and-recovery
- Table: Comparison of government Job Sharing scheme with IPPR proposal:
Objective of subsidy
Subsidise hours worked
Subsidise hours not worked
Flexible furlough would effectively be continued, but with eligible individuals would be expected to work at least 33 per cent of their usual hours.
There would be co-payment system as under the JRS, with the company and government each paying a third of the wage and the worker forgoing one third of the wages for hours not worked.
IPPR work-sharing scheme
Extends the existing JRS subsidy as of October with the government contributing 60 per cent and company 20 per cent of wage for hours not worked to guarantee a minimum of 80 per cent of the workers wage, capped at £2,500 per month.
However in addition, a 10 per cent subsidy should be introduced to cover hours worked part-time, to incentivise work sharing. This would have the benefit of preventing layoffs by making it profitable for firms to spread work between more workers
- IPPR is the UK’s pre-eminent progressive think tank. With more than 40 staff in offices in London, Manchester, Newcastle and Edinburgh, IPPR is Britain’s only national think tank with a truly national presence. www.ippr.org