On Thursday, Chancellor Rishi Sunak unveiled his plans for a new Job Support Scheme, aimed towards reducing mass unemployment as a result of COVID-19 in the coming months. However, experts have warned that despite the government’s best intentions, the scheme is unlikely to succeed at effectively stopping job losses – only slowing them to a degree.
To recap, the scheme proposes the following:
- That the government will subsidise the wages of eligible employees working fewer than normal hours due to reduced demand.
- That eligible staff need to be working at least a third of their regular hours.
- That the government and the employer will each cover one-third of the wages for unworked or lost hours, capped at £697.92 per month.
The Job Support scheme will apply to all small and medium businesses for six months, starting in November. Larger companies that have experienced reduced turnover may also apply for the scheme. Employers who have not used the furlough scheme are also eligible to participate.
Leading economists have decried the Job Support scheme, calling it a “stealth tax on employers”. Under the scheme, employers are effectively being asked to pay a larger proportion of wages for reduced output by employees. This means taking on an added burden to retain staff, in a period during which many employers expect to face reduced demand. Experts fear that this could lead to a reduced uptake, since employers may not perceive the benefits of the scheme.
Samuel Tombs, Senior UK Economist at Pantheon Macroeconomics, expressed concern, stating, “Employers' contributions under the UK scheme mean that those suffering much weaker demand will be better off employing fewer people on a full-time basis, instead of keeping all workers on part-time.”
Should employers choose not to participate in the scheme, the effects could be disastrous for millions. The Resolution Foundation said a single adult homeowner earning around £20,000-a-year could face an income reduction of approximately 19% working at a third of their usual capacity under the Job Support scheme. However, if they lost their job and were to claim Universal Credit, they could face as much as a 70% reduction in their income.
The Foundation estimates that by April, as many as six million households could be facing an income loss of approximately £1,000. This loss is expected to be even more sharply felt with high levels of unemployment expected around that time.
Torsten Bell, the founder of the Resolution Foundation, voiced his concerns, saying that "The coming rise in unemployment will mean a major living standards squeeze for families this winter.”
While the modest backing offered by the scheme may benefit some, many more remain concerned about the wave of redundancies that is likely to result once the fiscal support fades in the coming months.