Rishi Sunak has offered fresh help to employers hammered by the pandemic in the form of a gradual phase-in of contributions by them to the government’s hugely expensive wage subsidy scheme.
“As Britain returns to work, we need to adapt the emergency programmes we put in place to bridge through the crisis,” the chancellor said as he unveiled the reforms at the daily Downing Street briefing on Friday (29).
“There is broad consensus across the political and economic spectrum: the furlough scheme cannot continue indefinitely.”
He added the “new, more flexible furlough” was a key part of the government’s plan to “kickstart the economy”.
The chancellor also gave posted detailed explanations of what he termed the “final phase” of the job retention scheme.
1/ Our job retention scheme has now supported more than 8 million jobs and over a million businesses.
Today I announced the final phase of this eight-month scheme. This thread outlines how we’ll introduce flexible furloughing in the coming months.👇 pic.twitter.com/6FT4kuWvle
— Rishi Sunak (@RishiSunak) May 29, 2020
Sunak also announced that firms would be allowed to return workers part-time from July without risk of losing out financially, rather than August as had initially suggested.
“From July 1st, employers will have complete flexibility to decide on the right arrangements for them and their staff,” he said.
“For instance, your employer could bring you back two days a week. They pay you for the two days and the furlough scheme covers the other three.”
The government has been paying since March 80 per cent of the wages of workers who are temporarily laid off, and who now total 8.4 million, to limit a surge in unemployment.
In August the companies will have to resume pension and social security payments, building up to 10 per cent of wage costs in September and 20 per cent in October, a lesser requirement than reported by media before the announcement.
“By September, employers will have had the opportunity to make changes to their workplaces and business practices,” he explained on Twitter.
“Only then, in the final 2 months of the 8-month scheme, will we ask employers to contribute 10% towards people’s salaries with taxpayers paying the other 70%.”
🚨Flexible furloughing is starting one month early and employers will only be asked to start contributing to furloughed salaries from September.
Watch below to see how our eight-month job support scheme is evolving👇 pic.twitter.com/SPqK9JwT91
— Rishi Sunak (@RishiSunak) May 29, 2020
Sunak also brought forward to July 1 the start of part-time work under the programme, a demand of businesses seeking to rebuild gradually. He extended another multi-billion-pound income scheme for self-employed workers as well.
“Now, as we begin to re-open our country and kickstart our economy, these schemes will adjust to ensure those who are able to work can do so, while remaining amongst the most generous in the world,” he said.
Although common in other European countries, the income support schemes represented a big shift for the traditionally free-market Conservative Party when they were launched in March as the coronavirus crisis swept the world.
Len McCluskey, leader of the Unite trade union, welcomed Friday’s changes but called for more help for the hardest-hit sectors such as aviation and hospitality.
“Without such assistance, and soon, many businesses will simply shut up shop, resulting in the mass unemployment the chancellor has sought to avoid these past two months,” he said.
The cost of the two income programmes was now likely to shoot past £100 billion, the Institute for Fiscal Studies, a think tank, said, about as much as for the NHS over the same March-October period.
Sunak declined to say whether he would bring forward his next budget statement, due in the autumn, to spell out how he will tackle Britain’s surging debt.
BIG HELP, BIG COST
One in three private sector employees are covered by the Coronavirus Job Retention Scheme, which has already cost the state about £15 billion.
It is due to expire at the end of October and Sunak said on Friday it would close for new claims on June 30.
The Bank of England says the scheme could limit a rise in the unemployment rate to about 9 per cent, double its most recent reading but way below an estimated 20 per cent in the US.
Under the plan, workers have been receiving 80 per cent of their wages up to £2,500 a month.
Some employers had warned they would not be able to pay 20 per cent of the wage costs of their furloughed staff from August — as reported by media before Friday’s announcement — raising the risk of a fresh surge in job losses.
The Resolution Foundation, a think tank, said even the limited contributions required from August were likely to lead to significant layoffs in the hospitality sector, in which an estimated two million employees are now furloughed.
Sunak said hardship lay ahead for many but the scheme was too expensive to continue indefinitely.
Britain’s borrowing in April alone of over £60 billion pounds was equivalent to almost all of the previous financial year. It looks set to hit a towering 15 per cent of the gross domestic product this year.
About 2.3 million claims totalling £6.8 billion have been made under the income support scheme for self-employed people which was extended with a second, slightly smaller final grant available from August.