The chancellor’s incentive scheme to persuade employers to keep on furloughed staff beyond October may not be enough to stem job losses.
The furlough scheme will be replaced with a one-off £1,000 reward for each worker retained for three months, Rishi Sunak said in his summer statement.
But employers’ groups are warning more support may be needed to protect jobs.
Trade Union leader Frances O’Grady described the scheme as a “little tinkering around the edges”.
The chancellor was widely praised for taking decisive action in March when he introduced the furlough scheme to protect jobs, which has supported nine million employees over the last three months.
But there were concerns that firms would lay off workers as soon as government financial support was withdrawn, creating a “cliff edge” for jobs.
In announcing the new £1,000 Job Retention Bonus, the chancellor said creating and protecting jobs was the “most urgent challenge” the government faced but said keeping workers on furlough would provide some employees with “false hope”.
How does it work?
- Employers can receive a one-off payment of £1,000 for each furloughed employee who remains employed until the end of January 2021
- The employee must earn above £520 per month on average over that period
- Payments will be made from February 2021
- Further details will be announced by the end of July
However, several organisations have expressed doubts that the scheme will be sufficient to protect the millions of jobs that hang in the balance.
“The chancellor is absolutely right to prioritise jobs,” said Dame Carolyn Fairbairn, director general of the Confederation of British Industry.
She also welcomed the additional measures to create new jobs for young people, traineeships and apprenticeships.
“But prevention is better than cure. Many viable firms are facing maximum jeopardy right now,” she added. “With nearly 70% of firms running low on cash, and three in four reporting lack of demand, more immediate direct support for firms, from grants to further business rates relief, is still urgently needed.”
Mike Cherry, national chairman of the Federation of Small Businesses (FSB) National Chairman, also welcomed the “jobs first approach” but questioned whether the retention scheme would work smoothly enough.
“The job retention bonus must be easy to access. We can’t have paperwork holding up this vital support.
Frances O’Grady, general secretary of the Trades Union Congress said the retention scheme might not provide a sufficient bridge for many firms coming off the furlough scheme.
“A little tweaking around the edges is not going to provide the plan we need for those industries that are critical for this country’s future,” she said.
The government is offering a carrot if they hang on to workers.
The government says it could cost up to £9bn - a pretty blunt calculation of 9 million furloughed workers multiplied by £,000.
Of course it won’t be that simple. The calculation facing business owners is more complicated. Do they want to start paying 5% of employee wage costs next month, then 14% in September and then over 20% in October - followed by three months of full wages to land a prize of £1,000 during the worst downturn in living memory.
A lot of that will be contingent on demand, which the chancellor has tried to stimulate in the worst affected industries by cutting VAT and offering half price early bird food but it is surely wildly optimistic to think that employers will hang on for that long.
We also learned two other important things today. First that any idea of extending the furlough scheme - as many have called for in some form - appears dead. Second, the government and business are realising just how much they need each other.
So he is dangling his £1,000 carrot. The question is: is it big enough to save those jobs.
Employers were aware that the furlough scheme was being wound down. Firms were told they would have to pay employees pension and National Insurance contributions in August and contribute some money towards staff pay in September and October as part of a flexible furlough scheme.
Critics say at this stage many firms will already have decided to cut jobs rather than take on that extra burden.
The think tank the National Institute of Economic and Social Research (NIESR) said the £1,000 was unlikely to be enough to persuade firms to keep on staff given the difficult economic environment.
“While the aim of the Summer Statement is laudable, the new measures look to be badly timed and could precipitate a rapid increase in unemployment,” said Garry Young, NIESR Deputy Director.
“The incentives offered to employers look too small to be effective. Many employers have been topping up the pay of furloughed workers and are expected to bear more of the cost of the scheme from next month. They will be reluctant to do this now they know that the scheme won’t be extended.”