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The chancellor, Rishi Sunak, has announced an expansion of the job support scheme to protect companies and workers forced to close during coronavirus lockdowns this winter.
Against a backdrop of slowing economic growth, fresh government restrictions and rising job losses as the furlough scheme ends, the development comes just two weeks after Sunak announced his winter economy plan.
How does the new scheme work?
The government will support eligible businesses by paying two-thirds of each employees’ salary – 67% – up to a maximum of £2,100 a month. Firms will still need to pay national insurance and pension contributions. The scheme will begin on 1 November and will be available for six months, with a review in January.
Who is eligible?
Businesses whose premises are legally required to shut for some period over the winter, as part of local or national government coronavirus restrictions, will be able to receive grants to pay the wages of staff who cannot work.
This includes businesses that are forced to close their premises but continue to provide only delivery and collection services, or offer food and drink outdoors. Firms can only apply while they are subject to restrictions. Employees must be off work for a minimum of seven consecutive days. The scheme will apply UK-wide.
How is it different from the furlough scheme?
The Treasury is adamant it has not simply rebadged the extension of furlough as a new programme, despite several comparisons between the two schemes and accusations that Sunak has staged a late U-turn.
The coronavirus job retention scheme – commonly known as the furlough scheme – is due to close at the end of October. It offered to cover up to 80% of staff wages, up to a cap of £2,500 a month although it required financial contributions from businesses from July onwards. The level of support was then steadily reduced over the summer to 60%, with a cap of £1,875, from the start of this month.
The expansion of the job support scheme also does not require any contribution from employers, and provides support at a similar level.
It will sit alongside the original job support scheme, which will pay 22% of the wages for workers in “viable” jobs on reduced hours, while companies must contribute 55%. It will also sit alongside the £1,000 job retention bonus, which is paid per worker and is designed to encourage firms to keep staff on payroll until at least January.
How much will it cost?
The Treasury expects the cost of the scheme to be hundreds of millions of pounds a month, making the cost of the entire six-month package several billion pounds.
The cost will depend on how many companies are legally forced to close their premises by the government, and on how many workers firms claim. About a quarter of the UK population – more than 15 million people – are subject to some degree of restrictions but many venues remain open. However, restaurants and pubs could soon be forced to close.
So far, the furlough scheme has cost the exchequer almost £40bn since its launch in March. The number of people on furlough has fallen from a peak in May of 9 million to about 3 million in September.
Economists at the National Institute of Economic and Social Research believe extending furlough could pay for itself, because the cost to the public purse would be greater if more people lost their jobs – from rising benefit claims and long-term scarring to the economy.
Can the government afford it?
Sunak warned earlier this week “hard choices” would be made in response to record levels of government borrowing, as part of a “sacred responsibility” to balance the books for future generations.
The UK’s public finances are on course for a record peacetime deficit this year. The difference between public spending and income from taxes has soared to almost £174bn, more than three times the £55.8bn budget deficit last year. The national debt – the sum total of every deficit recorded – has reached more than £2tn, which is equivalent to about 102% of GDP or annual economic output.
However, the cost of borrowing has sunk to a record lows, and economists warn cutting spending or raising taxes would be counterproductive, because it would choke off Britain’s economic recovery and damage future tax income.
The International Monetary Fund has told governments of advanced economies not to worry about debt levels and has advised them to instead ramp up state spending as the best response to the pandemic.
Source: The Guardian
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