As UK fur­lough ends, Su­nak may have to look abroad for in­spi­ra­tion

The Chan­cel­lor faces a dif­fi­cult task in re­plac­ing the Job Re­ten­tion Scheme, writes Tim Wal­lace

The Daily Telegraph - Business - - Business -

Rishi Su­nak has a prob­lem. His fur­lough scheme, which suc­cess­fully pro­tected mil­lions of jobs through the first lock­down, closes at the end of Oc­to­ber.

It has been wind­ing down since Au­gust, en­cour­ag­ing peo­ple to go back to work and lim­it­ing the bill to the Trea­sury, which cur­rently stands at £40bn. But a resur­gence in the virus means new re­stric­tions have been in­tro­duced, so the cri­sis is not over yet.

The prob­lem is ur­gent. About a tenth of busi­ness em­ploy­ees were still on fur­lough at the start of this month, ac­cord­ing to ONS sur­veys, amount­ing to around 2.2m peo­ple. By the end of next month their em­ploy­ers will ei­ther have to take them fully back on to the pay­roll, or make them re­dun­dant.

If coro­n­avirus mea­sures con­tin­ued to lift, let­ting more staff in in­dus­tries such as hos­pi­tal­ity and leisure get back to work, then this might, just about, have been enough time to save those jobs. As it is, new re­stric­tions will limit de­mand for work­ers in pubs and restau­rants. Fresh in­struc­tions to work from home will hit busi­nesses in towns and city cen­tres, or those ca­ter­ing to work­ers on of­fice parks.

Pres­sure is mount­ing on the Chan­cel­lor to ex­tend the Job Re­ten­tion Scheme (JRS) or re­place it with a new sys­tem of sup­port when he an­nounces how he will help work­ers and busi­nesses to­day. So what are his op­tions? Su­nak could look abroad for in­spi­ra­tion. One op­tion is the US model. This in­volved no fur­lough at all, but in­stead beefed up un­em­ploy­ment ben­e­fits. Job­less­ness spiked sharply, then fell back rapidly as the econ­omy re­opened. But the dam­age is still sig­nif­i­cant, with the un­em­ploy­ment rate at 8.4pc in Au­gust, down from al­most 15pc in April but more than dou­ble the 3.5pc low in Fe­bru­ary.

It is a model that plays to the rel­a­tively smaller state, flex­i­ble tra­di­tions of the world’s largest

econ­omy, pro­mot­ing the pos­si­bil­ity of work­ers mov­ing to new jobs in­stead of be­ing given a po­ten­tially false hope that their old po­si­tion will still ex­ist.

Bri­tain also has a rel­a­tively flex­i­ble mar­ket, and the bigger the changes fac­ing the econ­omy, the more valu­able it could be. “There is a real risk that many jobs are not vi­able in their cur­rent form, and the fur­lough scheme may lock these peo­ple into jobs that don’t ex­ist, de­lay­ing the re­cov­ery,” says Matthew Ox­en­ford at The Econ­o­mist

In­tel­li­gence Unit. On the other hand, it could make the JRS look waste­ful if the Trea­sury has spent heav­ily to re­tain jobs and now sim­ply scraps the scheme. “How­ever, the Trea­sury is likely to need to pro­vide ad­di­tional fi­nan­cial sup­port to house­holds,” says Ox­en­ford. “This could take the form of mas­sively ex­panded un­em­ploy­ment in­surance, a part-time wage sub­sidy scheme, or other cre­ative so­lu­tion.”

Other na­tions with schemes more like Bri­tain’s have ex­tended their pro­grammes. Australia, for in­stance, has a sim­i­lar though less gen­er­ous JobKeeper pro­gramme, which has been ex­tended to March 2021.

Ger­many has a more es­tab­lished “short time work” sys­tem un­der which work­ers whose hours have to be cut re­ceive top-ups from the Gov­ern­ment. The idea is that lay­ing off skilled work­ers in a down­turn risks be­ing un­able to re-hire them in the re­cov­ery, wast­ing time, ef­fort and skills. It also makes in­vest­ment in heavy ma­chin­ery less risky.

On the other hand, it might not suit the UK’s eco­nomic model, or re­stric­tion-hit ser­vices in­dus­tries. Tony Wil­son, at the In­sti­tute for Em­ploy­ment Stud­ies, notes that the Ger­man cash flows straight to work­ers, so it only ben­e­fits bosses who can­not cut em­ploy­ees’ hours. By con­trast em­ploy­ers in the UK’s leisure and en­ter­tain­ments in­dus­tries can sim­ply keep work­ers on shorter days.

“The al­ter­na­tive is a straight sub­sidy, to pay a per­cent­age of wage costs of em­ploy­ees,” he says. “That way, you can en­cour­age em­ploy­ers to keep peo­ple at work, so you don’t end up pulling the stool away at the same time as we are shut­ting down parts of the econ­omy.”

Rishi Su­nak

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