Rishi Sunak is to update the House of Commons tomorrow on the next stage of the government’s plans to protect jobs and businesses after the furlough scheme ends in October.
The question is no longer whether the Chancellor will continue with his jobs package but how and what he will replace the scheme with when the deadline runs out at the end of next month. Action will be needed to prevent a jobs bloodbath.
Although the Treasury has yet to give any hints, the Chancellor is looking at a number of options ranging from the government subsidising companies which reduce the number of hours worked by employees to targeted grants for businesses which have been hit the hardest such as those in hospitality and the entertainment industries. With so much to do keeping the country afloat, Sunak has also decided to scrap the Autumn Budget. Thank goodness for that, as anyone trying to come up with the obligatory Budget jokes and forecast into next year would only end up looking more than foolish.
And Sunak is not foolish. What is also certain is that the Chancellor is unlikely to continue with the furlough scheme – which is still supporting around 3.6 million jobs – as it currently stands.
Indeed, Sunak has said on many occasions that the scheme cannot continue in its present guise because of the cost – £54 billion so far – but also because it is protecting many businesses which were already struggling pre-pandemic.
He is backed in this view by both Bank of England Governor, Andrew Bailey and Andy Haldane, the bank’s chief economist, who argue that persisting with the scheme would be wrong because it is protecting zombie businesses and does not allow the labour market to adjust to the latest trading conditions.
Although the Chancellor has come under pressure from business leaders and opposition MPs to extend the scheme, he has also been clear he will do everything within his power to protect as many jobs as possible to avoid a cliff-edge when the scheme ends. He’s also been adamant he prefers more creative and imaginative schemes to the furlough scheme which was a one size fits all version needed at the start of the crisis.
There are at least four options which have been put to the Treasury by the various business lobbies which are being considered. Here is a taster of what we might expect, ranging from the terrible to the clever.
One option being favoured by the CBI and TUC is a version of the German “Kurzarbeit” scheme or short-time working subsidy. In this scenario, the employer cuts workers’ hours and the government subsidises the money they would have lost if workers had been full-time.
The French run a similar subsidy scheme in which companies can cut the number of hours worked by employees up to 40% for up to three years but workers still receive their full pay.
It is interesting that both the TUC and CBI are backing some sort of similar arrangement with the TUC suggesting up to 80% of salary should be paid by the government. The CBI suggests up to 50%.
This is by far the worst idea, and the Chancellor should ignore their siren calls. Indeed, the fact that trade union leaders and big business both support such a scheme should ring the alarm bells: both groups love free money. Julian Jessop, the independent economist, says that such a scheme is also inefficient as it props up businesses which may have already been struggling but also be inherently unfair on those who are working full-time.
Far better than protecting all businesses and zombie jobs that will never return, Sunak will hopefully be looking at incentives for firms to hire, either through more grants and tax breaks for companies taking on new workers.
While there are many thousands of jobs being lost in retail – most of which would have gone anyway in time as the the economy became more digital – there are also thousands of new jobs being created in other areas such as online deliveries, warehouses and so on.
So far better to let the market take its course, but give companies which are doing well the incentives to create new jobs but also invest in skills and re-training.
The third option is to target the worst hit industries as the Chancellor did earlier in the year by cutting VAT for tourism and hospitality. With the latest curfew restrictions sending another shiver through the pubs and restaurant trade, he will need to look at other ways of helping to support these businesses through the coming months.
Fourth, the Chancellor could do more to help the regions which have been hurt the most, such as the West Midlands, the North West and North East and help with regional grants and subsidies.
Alternatively, there is more that could be done to help those who have lost their jobs through the benefits systems through income-support and Universal Credit while also helping out with skills and re-training packages. And of course, the extension of tax incentives to investors who want to risk their capital in start-ups and small businesses. That’s a no-brainer. So too is more help for the millions of self-employed and small business owners who are the wealth and job creators in the country.
Sunak has shown that he listens to everyone, and that he likes to please. And so far the country’s youngest ever Chancellor but one has done just that, turning himself into the darling of the backbenchers and the shoo-in to replace the Prime Minister should he decide to vacate office. But now he needs to be tough: Chancellors are not meant to be popular.