A NUM­BERS GAME

The Daily Telegraph - Business - - Coronaviru­s: Sunak’s Winter Economy Plan -

The scheme will leave em­ploy­ees bet­ter off if their hours are cut. How­ever, firms will be landed with higher costs if they keep staff on. Let’s take the ex­am­ple of two pubs.

Be­fore lock­down both em­ployed three staff mem­bers on min­i­mum wage who worked 40 hours each per week, to­talling 120 hours. How­ever, both pubs now only need 40 hours of work per week.

The first, The Dol­phin, makes two em­ploy­ees re­dun­dant and keeps one to work a full 40-hour week. At min­i­mum wage of £8.72, this costs the busi­ness £348.80 per week.

It also re­ceives £1,000 from the jobs re­ten­tion bonus for bring­ing one em­ployee off fur­lough. In six months’ time, the pub has a net spend of £7,352 for 960 hours worked – an ef­fec­tive hourly rate of £7.66. The sec­ond pub, The King’s Arms, will use the new jobs sup­port scheme and its three em­ploy­ees will work one-third of their con­tracted hours – in this case 13.3 hours each per week. This pro­vides a to­tal of 39.9 hours.

This costs the pub £557.49 per week, how­ever. It pays out £347.92 in wages and another £69.94 to each em­ployee for the hours they are no longer work­ing, a to­tal of £209.52. It re­ceives £3,000 in jobs re­ten­tion bonuses.

Af­ter six months, it has a net spend of £10,379 for 957.6 hours worked

– an ef­fec­tive hourly rate of £10.83. This is 40pc higher than if it only re­tained one em­ployee and made two re­dun­dant. This also does not fac­tor in the ad­di­tional costs of staff such as na­tional in­sur­ance, pen­sions and busi­ness in­sur­ance.

Econ­o­mists at the Res­o­lu­tion Foun­da­tion note the JSS dif­fers from the Ger­man short-time work scheme, which is of­ten cited as a clas­sic model of this type of sup­port, be­cause the Ger­man sys­tem only re­quires the em­ployer to pay staff for work done, with the top-up pro­vided en­tirely by the state. By con­trast the Bri­tish sys­tem splits the cost be­tween the Govern­ment and the em­ployer, re­duc­ing the in­cen­tive for bosses to sign up to the scheme, but low­er­ing the cost for the Trea­sury.

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