Chancellor Rishi Sunak unveils new wage subsidy to save jobs
The Chancellor has unveiled a new jobs protection scheme that will top up the wages of workers as a second Covid-19 wave threatens to derail the economy’s recovery.
Rishi Sunak vowed to help “the recovery by protecting jobs through the difficult winter months” as he announced a replacement to the furlough scheme.
Under the new subsidy, employees must work at least a third of their normal hours but for every hour not worked the employer and government will each pay one third towards their usual pay. The Treasury said workers using the scheme would receive at least 77pc of their pay where the Government contribution is not capped.
From 1 November, for the next six months, the Job Support Scheme will protect viable jobs in businesses who are facing lower demand over the winter months due to Covid-19. pic.twitter.com/8NpIKpQV8y
— HM Treasury (@hmtreasury) September 24, 2020
The scheme is open to any UK business and will last for six months but the grant will be capped at just under £700, making the support much less generous than the furlough scheme, which has cost the taxpayer £39bn so far. It is expected to cost £300m per month for every million workers that use the scheme.
Mr Sunak also extended the income support scheme for self-employed workers with a third lump sum available worth up to 20pc of average monthly profits.
The furlough scheme was due to end next month but a tenth of the workforce, or more than 3m workers, are still using the wage support. He said keeping workers in so-called zombie jobs by extending the furlough scheme would be “fundamentally wrong”.
The Chancellor warned the second wave posed “a threat to this fragile economic recovery”, adding that the economy was going through a “permanent adjustment”.
With the health crisis escalating in the UK, the Chancellor cancelled the Autumn Budget and instead announced a Winter Economy Plan to bolster the economy.
Business support extended
Mr Sunak also announced new measures to ease the pressure on businesses, including a “pay as you grow” programme for the small firms that tapped his Bounce Back Loan Scheme. Businesses will now be able to extend the loans from six to 10 years and suspend repayments for six months, “nearly halving the monthly” cost of the loans to firms, he said.
All the loan guarantee schemes were extended until the end of the year with a successor to be unveiled in January. In addition, the VAT cut for hospitality and tourism firms was extended from Jan 13 to the end of March, while firms can spread their VAT bills over 11 smaller repayments.
Industry leaders and economists warned withdrawing the wage subsidy would cause a surge in unemployment with the likes of Germany and France already extending their wage support schemes. New restrictions to curb another wave of Covid infections also threatened to put huge pressure on the jobs market.
Mike Cherry, chair of the Federation of Small Businesses, called it a “swift and significant intervention” but warned firms “are facing a incredibly difficult winter”.
“Today’s support package is the flipside of the coin to Tuesday’s Covid-19 business restrictions,” he said.
Dame Carolyn Fairbairn, head of the Confederation of British Industry, said the intervention would save “hundreds of thousands of viable jobs this winter.”
“It is right to target help on jobs with a future, but can only be part-time while demand remains flat.”
However, economists warned the support will only cushion the blow the economy faces from a second wave.
Ruth Gregory, economist at Capital Economics, said: “These actions won’t eliminate the hit entirely. That is why we think GDP will stagnate in the last three months of the year.”
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