Aidan Shilson-Thomas is a Researcher at Reform.
Any reasonable assessment of the Government’s response to supporting jobs during the Coronavirus crisis has to be positive.
Yes, there are some gaps, and some inconsistencies, but credit where credit is due: at eye-watering speed the Government has created entirely new schemes that have prevented mass redundancies and, as far as possible, are protecting incomes.
In an often sclerotic Whitehall bureaucracy, that is no mean feat.
But without urgent action, one of those programmes – the Job Retention Scheme (JRS) – risks becoming a barrier to re-opening the economy.
The JRS – or furlough scheme, as it’s popularly known – subsidises 80 per cent of an employee’s monthly wages up to a cap of £2,500.
With millions of businesses in the UK either shut due to lockdown, or struggling due to reduced consumer spending, that state aid is what is enabling employers to keep their staff on payroll. And to date it’s been hugely successful – less than one per cent of the workforce across surveyed businesses has been made redundant.
At the point of lockdown, averting the immediate economic damage to businesses, employees and households was rightly the primary objective.
Six weeks in, attention is turning to exit, with increasing calls for the Government to set out steps that will be taken to reopen the economy.
With nearly 30 per cent of the workforce thought to be on furlough, businesses now depend on this support to exist. Weaning them off it presents a considerable challenge to the Chancellor – and one of the biggest barriers is the design of the scheme itself.
Under current arrangements, employees who are furloughed must stop work completely – you’re either in, and receiving state subsidy, or you’re out. This cliff edge will make the ‘gradual’ exit from lockdown that the Chancellor has hinted at much harder to execute.
Even if businesses are able to open, they will do so under the social distancing rules, meaning lower footfall. That, combined with suppressed consumer spending, could mean reduced revenue for some time. In order to survive, businesses will likely need fewer staff, or staff working reduced hours.
The JRS doesn’t allow for this – and only low-income workers would be able to apply for benefit top ups through the welfare system, meaning far more households in serious financial difficulty.
It could also trigger the wave of redundancies that was so effectively avoided at the start of lockdown.
To avoid this outcome and achieve the gradual easing of support that the Chancellor desires, the scheme will have to change. At least part of the answer lies in ‘short-time’ working, as a new report from Reform think tank argues today.
This model enables the state to top up salaries for employees working reduced hours. Germany, France, and Sweden are already operating schemes like this. Other countries, like Canada and Denmark, also have arrangements that in effect allow employees to keep working on a reduced basis. In fact, the UK is an outlier in this regard.
There are also wider benefits to letting employees work if they can. A wealth of research shows that work can be beneficial for mental health, a particularly important consideration given the increasingly negative impact of the virus on our psychological wellbeing.
The point at which the employment support schemes end will be the next test of how well the Government’s response has insulated businesses and families from the economic shock of the coronavirus.
The Chancellor’s measures have stayed off economic collapse. Now, they must prove adaptable enough to get the economy motoring again.