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U-turns are always hard for politicians but Rishi Sunak’s was more humiliating than most. It was only last month that the chancellor was congratulating himself on the generosity of his winter economy plan, which scaled back the Treasury’s financial support just as the Covid-19 pandemic was entering a more threatening phase.
Yet from the moment Sunak announced the details of his WEP it was clear that he would have to come up with more or risk businesses go bust in their droves.
Now the chancellor has sought to address the design flaws by reducing the amount employers will need to contribute to top up the wages of employees working part time, by making government grants more widely available to struggling businesses, and by increasing support for the self-employed.
Sunak hopes this will deal with two problems, one national and one local. The national problem was the contribution the Treasury expected businesses to make to the wages of part-time employers at a time when the summer recovery in the economy has petered out. Under the furlough scheme, the state paid 80% of a worker’s wages and employers paid nothing. From August, the employers’ contribution rose gradually to 20% this month.
The job support scheme replaces the furlough next month, and was designed to help those doing a third of their normal hours. For the remaining time, the plan was for the costs to be split equally between the Treasury, the employer and the worker. So employers would be paying 55% of the wage costs for someone working 33% of the time. This made it more expensive for employers to hire two part-time workers than one full-time worker.
The new plan is aimed at preventing the inevitable layoff that would result by reducing the minimum hours needed to be worked to 20% and by reducing the contribution of employers to the top-up to 5%. According to the Treasury, that means that if someone was being paid £587 for their unworked hours, the government would be contributing £543 and their employer only £44.
There was also a local problem caused by the government’s tiered approach to tackling Covid-19. Businesses in the highest tier – tier 3 – that were forced to close would have 66% of the wage bill covered by the state; but businesses in tier two not forced to shut but which were suffering from a drop in demand received no extra help. Hospitality businesses in London have been especially critical and the chancellor has responded both with the more generous job support scheme and through grants of up to £2,100 a month, paid retrospectively.
Sunak’s volte-face follows a well-established political principle that when you are in a hole the first thing to do is to stop digging. Clambering out of the pit will be no easy task, however. The self-employed, who will receive grants worth 40% of their normal income, will rightly feel aggrieved that they are being treated less generously than employees. There could be more u-turns to come.
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Source: The Guardian
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