24/09/2020 13:52 BST

Rishi Sunak’s Furlough Replacement ‘Will Lead To Job Losses’, Experts Warn

Economists and industry figures say the "less generous" scheme could bring about "a new wave" of unemployment.

Rishi Sunak has been warned that his decision to replace furlough with less generous wage subsidies will lead to widespread job losses.

The chancellor announced plans to allow workers to have some of their lost wages covered by the government for six months if their hours are reduced, following the imposition of fresh coronavirus restrictions.

Sunak insisted the jobs support scheme was focused on saving jobs that would have been “viable” if businesses were not hamstrung by the imposition of Covid-19 restrictions, by encouraging firms to keep people on part-time.

The moves were welcomed by the CBI industry lobby, who proposed a very similar plan, as well as the Trades Union Congress (TUC).

But Paul Johnson, director of the independent Institute for Fiscal Studies (IFS) said that while the changes were “understandable”, many furloughed workers were “now likely to lose their job”.

Torsten Bell, chief executive of the Resolution Foundation, said the move would temporarily stem job losses but not stop them.

He said the scheme will not, on its own, encourage firms to keep workers on part-time rather than fire them because it will still be cheaper to employ one full-time worker than two on reduced hours.

But Sunak’s job retention bonus - paying companies £1,000 to rehire previously furloughed staff - will at least give companies the incentive to retain workers part time until firms are eligible for the bonus at the end of January, which he described as “a new cliff edge”.

“After January this scheme will not be effective at encouraging firms to hold onto workers in the sectors that are hardest hit (ie hospitality/leisure) - the employer contribution is just too high,” Bell tweeted.

The Joseph Rowntree Foundation said there will still be a “new wave of job losses” and warned that women, Black and minority ethnic (Bame) and young workers would be disproportionately hit.

Its director Helen Barnard said: “The chancellor’s initial policy response to the economic impact of Covid was bold and compassionate. 

“We need the policy response to the next wave to be similarly bold, but the announcements today failed to meet that test.

“Jobs that have been viable in the past and will be again in the future need specific support to get through the current crisis. 

“But the design of this scheme risks undermining its success and leading to more job losses, by creating an unnecessary disincentive to employers to make use of it.”

The Food and Drink Federation (FDF) welcomed the jobs support scheme and an extension of VAT cuts for hospitality, but warned of “mass unemployment” among hospitality firms and their suppliers following the imposition of a 10pm closing time on pubs and restaurants. 

FDF chief executive Ian Wright called for a continuation of targeted furlough.
He said: “The requirement for staff to be working part-time to be eligible for support will not be enough to sustain hospitality businesses and their food and drink manufacturing suppliers – the squeezed middle - through a difficult autumn and winter where pubs, bars, and restaurants will have significantly reduced custom.

“The pandemic has had a far greater impact on some sectors of the economy than others – sectors that would continue to support millions of viable jobs once a vaccine is achieved and social distancing can end. 

“Only by continuing a targeted furlough scheme while the current restrictions remain will we avoid mass long-term unemployment and the decimation of a sector that could otherwise support our economic recovery once the pandemic is over.”

John Phillips, acting general secretary of the GMB union, said he would be studying the detail to see if Sunak’s plan was “enough to stave off widespread redundancies”. 

“GMB is calling on all employers who have redundancies planned to halt those processes and reassess based on this announcement. If bosses won’t do that, the government must step in,” he said. 

TUC general secretary Frances O’Grady and CBI director-general Dame Carolyn Fairbairn, who were pictured with Sunak in Downing Street earlier, welcomed the plans. 

But O’Grady urged the chancellor to go further by offering retraining and helping industries “facing a tough winter”. 

She said: “This scheme will provide a lifeline for many firms with a viable future beyond the pandemic.   

“But there’s still unfinished business. Unworked hours under the scheme must not be wasted. Ministers must work with business and unions to offer high-quality retraining, so workers are prepared for the future economy.   

“And we’ll be looking closely at the details to make sure there are strings attached. 

“The government should target help at industries facing a tough winter, and provide more support for families most at risk of hardship and debt.”   

Dame Carolyn Fairbairn said: “These bold steps from the Treasury will 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. This is how skills and jobs can be preserved to enable a fast recovery. 

“Wage support, tax deferrals and help for the self-employed will reduce the scarring effect of unnecessary job losses as the UK tackles the virus. Further business rates relief should remain on the table.

“Employers will apply the same spirit of creativity, seizing every opportunity to retrain and upskill their workers.  

“The chancellor has listened to evidence from business and unions, acting decisively. It is this spirit of agility and collaboration that will help make 2021 a year of growth and renewal.”