As winter descends, will this keep off the chill, and for how long?
Chancellor’s compromise is a halfway house between TUC and CBI demands
HUNDREDS of thousands of workers may not find much reassurance in Rishi Sunak’s latest pledge to save “viable” jobs. A Covid winter is descending on the labour market and it is unclear how much this job support scheme will do to keep off the chill.
Those in sectors still hamstrung by social distancing, such as hospitality or the creative arts, will be nervous. The Chancellor has come up with the initiative in response to rising panic and fresh restrictions as he wrestles with the pandemic’s “awful trade-offs” between health and wealth.
The end of furlough risked a jobs massacre and Sunak has the unenviable task of building a bridge towards a vaccine, while allowing the process of creative destruction in the economy.
He is surely right that preserving dead jobs in aspic on furlough is “fundamentally wrong”, but how many positions will this new compromise actually save? In stepping in to support the wages of staff able to work the minimum of a third of their existing hours, the Chancellor has struck a halfway house compromise between the demands of the TUC and the CBI.
But crunch the numbers and the calculus isn’t too appealing for a boss faced with the problem of what to do with a worker on the minimum hours demanded by the scheme.
If an employer keeps on a member of staff for a third of his or her hours, under Sunak’s plan he is still accountable for a third of the pay of the remaining 66pc. Effectively he’s paying 55pc of a worker’s wages for one-third of the hours. How many companies are going to do that?
Even combined with the £1,000 job retention bonus due to be paid at the end of January, the employer is still on the hook for some of the wage bill and has some tough decisions to make. After January, of course, a fresh cull is on the cards.
The Chancellor sensibly zeroed in the scheme at small and medium-sized businesses that account for the bulk of the workforce with 16.6m employees.
But larger firms, which employ about 10.8m people, will be subject to turnover rules and other restrictions that may make them decide to shun the scheme and pull the trigger on redundancies instead.
There will be restrictions on payouts to shareholders while larger companies were in the scheme but they will also be barred from making redundancies, which could also make bigger corporates think twice.
The Treasury says the scheme will be “demand-led”, but estimates a much less generous £300m a month cost of the scheme per 1m workers, compared to the £5bn to £6bn cost of the furlough. The new self-employment grant also becomes much less generous too, with the Treasury mandarins keeping half an eye on a deficit already set to top £320bn this year. All told JP Morgan Chase estimates total extra spending of £4bn, which is chump change by Covid-19 standards.
Of much more practical use will be the swathe of tax deferrals announced by Sunak to allow companies to delay payments, extend loans and guarantees and even allow firms to potentially suspend payments altogether for six months if necessary.
This support should hopefully allow firms to ride out what the British Chambers of Commerce chief Adam Marshall calls the “month 13” problem: the effect on companies’ working capital when the support schemes announced at the height of the emergency in March expire.
That leeway to deal with debts racked up during the pandemic will be gladly seized by many firms keen to get on the front foot and start growing again. In the long term that’s a much better way to deal with a jobs crisis than state subsidies.