Chancellor Rishi Sunak announced yesterday that he is extending government support for jobs, revealing a new support scheme which he claimed would “adapt and evolve” the current furlough programme.
The flagship coronavirus Job Retention Scheme (or furlough), which is set to end on 31 October, saw 9.6m people receive up to 80% of their wages at its peak in May, with around 3m still on the scheme at the end of September. But with the second wave of Covid-19 now upon us – and the after-effects of the first still washing through the economy – it was always likely that support would have to be stretched beyond the scheme’s original closing date.
And whilst this new support for jobs is welcome, moving the UK closer towards standard European systems to support short-time working (working fewer than the regular hours per day or days per week), the new Job Support Scheme (JSS) falls a long way short of what is needed, both in the immediate and longer-terms.
Making sense of the new scheme.
The main idea behind the new scheme is that in order to discourage redundancies and a spike in unemployment, workers reduce their hours and the government subsidises their pay. Employees are eligible for support if they work at least one-third of their normal hours. For every hour not worked (relative to their usual hours), the government commits to paying one-third of their pay, whilst participating employers also have to pay one-third.
The government claims it wants to prioritise keeping people in reduced hours employment, rather than seeing them lose their hours entirely. It is an approach that has been urged on them from all quarters recently, with Germany’s “Kurzarbeit” scheme credited with ensuring it was the only G7 nation in 2009 to avoid unemployment frequently cited as an example. Aimed primarily at small and medium-sized businesses, larger employers have been told they can’t pay dividends if they use the scheme – a nod in the direction of fairness, but quite likely to reduce participation.
Indeed, as plenty of online critics have pointed out, when we start to think about how the scheme works in practice, problems quickly emerge; significantly, that the incentives for employers seem to be the wrong way round. Case in point: an employee working one-third of their usual hours (the minimum) would be paid 55% of their pay by their employer, with the government paying another third of the remaining hours on top-up to a cap of around £38,000.
For better-paid employees, there should still be an incentive for their employer to take part, since the costs of redundancy (and the loss of the government’s Job Retention Bonus) are likely to be higher than the costs of paying for part-time work under the scheme. However, by including an employer contribution like this, the government seems to have made it cheaper to employ one person full-time than two people part-time, as the Resolution Foundation pointed out.
Meanwhile, for lower-paid workers – thinking especially of those in sectors which have been badly affected by the virus, like hospitality – there are few incentives to keep anyone on, even part-time. While the available Job Retention Bonus – which pays £1,000 to employers who retain furloughed employees after furlough ending – might offer some financial incentive for employers to use the scheme and keep part-time employees, the fact still remains that when the scheme ends in January, the unemployment cliff-edge will appear once again.
The lack of support tailored to specific sectors, and less still to adapting the economy to future work, is glaring. Significantly, the scheme fails to include training and skills-building in its remit, despite the Labour party’s insistence. Indeed, if the programme is to be a genuine route to a rebuilt economy, it is vital training opportunities are put in place so future workers are prepared for employment. What’s more, in a marked departure from the German system, the UK scheme does not pay pension and social security contributions. Unsurprisingly, the three million or so people excluded from the original furlough scheme and self-employed support will also get little to nothing out of the set of new announcements. And while the German system is projected to last for at least two years – with the percentage of wages received increasing incrementally over that time – the UK’s version is set to last only six months.
Considered together, the scheme seems to be built around the Treasury’s desire to cut costs (the new scheme costs £1.2bn a month, compared to furlough’s £4bn) and the government’s unwillingness to seriously steer firms’ decisions. This is very much a hands-free intervention, leaving as much to the market as possible – which is why the Tories talk (vaguely) about supporting “viable” jobs. Ultimately, the scheme falls far short, not only of providing the necessary short-term support, but also that which is needed in the longer-term in order to effectively deal with the many challenges that lie ahead.
A marathon, not a sprint.
Where the government has previously downplayed the impact of the virus, it now appears to have reached a point of realising that its effects are not going away anytime soon – even with a vaccine. Although paling in comparison to its German counterpart, the restrictions Boris Johnson announced this week are, by the UK’s standards, more long-term and likely to remain in place for at least six months. Sunak’s announcement reflected the same understanding, with the new scheme designed to adapt how people work for a far longer period of time than the lockdown. Indeed, Sunak spoke in parliament about the “permanent” changes now needed to how the economy functions.
This is an improvement on where we were: the Conservatives may actually be trying to learn from their earlier disasters. The government failed to take action against coronavirus early on and then was panicked into a late lockdown by the rapid rate of infection and the appalling mortality forecasts. Because the lockdown was late, it had to be extended far longer than in other countries to bring the rate of infection down, which resulted in Britain having the deepest Covid-19 recession in the developed world – at the same time as one of the highest death rates.
With the economy tanking, the government then tried to move too rapidly to end lockdown, encouraging a return to work and subsidising restaurant meals, which resulted in the virus numbers once again picking up. During that brief period of relative respite over the summer, between the first and second wave, the government failed to get a test-and-trace system up and running – the one, robust technology we have to control and monitor the virus, and our best bet for reintroducing elements of normality back into public life.
If the Conservatives are now at least recognising that long-term adaptation to the virus is required, we may, perhaps, be able to avoid this virus-business cycle. With that said, there is still a massive mountain to climb: the new scheme remains woefully inadequate in meeting the task of rebuilding and reconfiguring the economy, which is what is required – and has been known (and argued for) since March.
The problem with furlough.
The furlough scheme adopted by the government, following lobbying by trade unions back in April, has played its part in supporting the lockdown against the first wave of the virus. It has meant very large numbers of people – up to a third of all employees – have been able to limit their own social contact with others and, as a result, limit the transmission of the disease. But whilst it was essential to the relative success of the lockdown, it also came with its own problems.
Far from reshaping the economy, the scheme only preserved the status quo, freezing the economy in place, with all its flaws and inequalities. The generosity given to a particular set of employees – often those employed by larger companies, on standard contracts and otherwise in secure jobs – was not matched by similar generosity to the self-employed or those on otherwise non-standard contracts – let alone those who are unemployed, and still at the mercy of a (marginally improved but obviously inadequate) Universal Credit system.
This couldn’t mean simply ditching the furlough scheme. With unemployment already mounting, as the shock from the lockdown played out, a sudden end to the JRS risked a very rapid rise in unemployment, as employers refused to place furloughed workers back on their payroll. It is unclear why the government ever seriously thought ending furlough this autumn was a good idea. Presumably they had been swayed by some of the – brave, but profoundly wrong – talk about a “V-shaped” recovery, whereby the economy would bounce back like a rubber ball as lockdown ended.
With that said, even official forecasts pointed to a rapid and sustained rise in unemployment. It’s possible this was a simple (and cynical) political calculation, with threatened furlough withdrawal and then extension allowing Sunak another round of appearing both generous and statesmanlike ahead of his official bid for the Conservative party leadership – the unofficial bid plainly having started some time ago.
An alternative adaptation.
As the right begins to adapt, however tentatively, to this brave new post-Covid world, it is vital the left is prepared to offer an effective response to the changing political situation. As we move out of the first phase of the pandemic crisis and into the next, three things have to happen.
First, we need to operate on the basis that a vaccine will not move us back to a pre-Covid-19 status quo. Adaptation should be the starting point. The very discovery of a successful vaccine, as Adam Tooze has described, is likely to worsen the economic dislocation and political uncertainty, as competing countries and companies attempt to grapple with the monumental logistical problems involved in producing and distributing it. If we do not have long-term immunity to the virus, the additional problem of delivering rolling, co-ordinated re-vaccinations will come to dominate.
Second, we need to be putting forward proposals on making the society we live in secure against the virus: creating a test-and-trace system, with secure and trusted contact tracing; reducing time spent in offices and in commuting, with government support for reduced hours and working from home across the economy; and, if we have to, making serious choices about priorities for opening and closing parts of our society – if push comes to shove, keeping schools open matters more than keeping pubs open.
If real-world interaction has to be rationed to manage risks, we have to choose what we truly value. Local authorities and mayors should be given greater powers and resources to manage this and the task of the national government is to support them in this. Significantly expanding the provision of social security – through universal basic income, for example – would help immensely here.
Third, we need a plan to rebuild and reshape the economy away from the insecure and biologically exposed path it was on. It is highly unlikely Covid-19 will be the last disruptive pandemic we face; indeed, it is easily possible to imagine some future disease – a fresh mutation of an influenza virus, perhaps, that is far more disruptive than this. As we place increased pressure on the natural environment, the rate of epidemics and pandemics is only set to increase. The evidence suggests climate change will accelerate this further, as nature is fundamentally disrupted.
To cope with a decaying environment, we need a revaluation of the kind of economy we live in. The Women’s Budget Group proposals on a care-led recovery are an excellent example of the kind of long-term thinking needed, not only to reduce our environmental impact but to prepare for life in a world where insecurity of a profound kind is a fact of life. This isn’t about the economy “adapting and evolving” to the new circumstances, as Sunak claimed; it is about us deciding what we value, and want more of, and planning and working to shape an economy that can deliver it.
The challenge isn’t in getting to a world with Covid-19 magically removed, or in pretending the virus somehow doesn’t matter – it is in how we adapt to a world where these are not options. Sunak’s intervention, coupled with Johnson’s earlier one in the week, suggests the Conservatives are inching towards an understanding of this fundamental problem and will pose “solutions” most amenable to the status quo.
For the left, the challenge is to find and present the fairest and most sustainable plans for managing the constrained environment we now find ourselves in – and, crucially, to win support for those plans. If the Tories are adapting to this new reality, the left has to be ready to do the same.
James Meadway is an economist and Novara Media columnist.