Chancellor Rishi Sunak (pictured) has announced a new job support scheme that will focus on “protecting viable jobs” and replace the furlough scheme when it ends in October.
Under the new scheme, the government will top up the wages of employees who have been put on reduced hours because of the economic impact of the coronavirus.
Firms will be able to reduce their employees’ working time to as little as a third of their regular hours, and will continue to pay them as normal for hours worked. The employee will then have their wages topped up to cover two-thirds of the pay lost by the reduction in hours, with the government and the employer paying a third of the remaining wages each.
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This means that if an employee is only working a third of their usual hours, they can expect to receive 77 per cent of their regular pay, of which 55 per cent will be covered by their employer.
The scheme will be open to all small and medium-sized businesses, and to larger companies that can prove their turnover has fallen as a result of the crisis. It will be open for six months starting in November. Employers do not need to have taken advantage of furlough to access this new scheme, and are still eligible for the job retention bonus if they use the new scheme to bring workers off furlough.
Speaking in parliament today (24 September), Sunak said there had been “no harder choice” than to close the furlough scheme, but that the challenges faced by businesses were now different to those at the start of the crisis. “Many businesses are operating safely and viably but they now face uncertainty and reduced demand over the winter months. What those businesses need is support to bring people back to work and protect as many viable jobs as we can,” he said.
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“To do that… the government will directly support the wages of people in work, giving businesses who face depressed demand the option of keeping employees in a job on shorter hours rather than making them redundant,” Sunak added.
As predicted, the scheme has much in common with Germany’s ‘Kurzarbeit’, or short-work, scheme, under which German employers can put their staff on reduced hours and the government pays at least 60 per cent of their wages for the time they are not working. Employers then pay staff in full for those hours that are worked.
It is also reminiscent of France’s ‘chômage partiel’, or partial unemployment scheme – a scheme that predates coronavirus and allows employers to cut staff hours by up to 40 per cent for three years. Under this scheme, employees still receive nearly all of their salary, with the government picking up a proportion of the bill.
The job support scheme was part of a wider package of measures announced as part of Sunak’s ‘winter economy plan’. The chancellor also announced an extension of the existing self-employed grant, on similar terms and conditions to the new jobs support scheme. He also increased the repayment time for bounceback loans from five to 10 years, and is allowing businesses to spread the cost of deferred VAT payments over a 12 month period. Sunak also extended the lower 5 per cent VAT rate for the hospitality and tourism sector until 31 March next year.
The new jobs scheme has been welcomed by the TUC, whose general secretary, Frances O’Grady, was photographed standing alongside the chancellor and Carolyn Fairbairn, director-general of the Confederation of British Industry (CBI), on the doorstep of 11 Downing Street as Sunak made his way to parliament to deliver his address.
O’Grady called the scheme a “lifeline for many firms with a viable future beyond the pandemic.” But, she added: “Unworked hours under the scheme must not be wasted. Ministers must work with business and unions to offer high-quality retraining, so workers are prepared for the future economy.”
Labour’s shadow chancellor Anneliese Dodds welcomed the announcement, but criticised the government for the time it took to announce the scheme. She told parliament: “I’ve called for the introduction of a system of targeted wage support 40 times. That call has been rebuffed by this government 20 times. It’s a relief this government has U-turned now.
“That delay in introducing this new scheme will have impacted on businesses’ confidence,” she said, noting that the deadline for large firms to start redundancy consultations in time for the end of the furlough scheme “came and went last week without a word from this government”.