“Chancellor’s new wage subsidy scheme could create a ‘cliff-edge’ of job losses in January 2021”

In a brutally candid statement to the Commons, the Chancellor confirmed that the furlough scheme will end as he argued that it is “fundamentally wrong” to keep people in unviable jobs. In its place, Mr Sunak announced a new jobs support scheme (with a similar scheme for the self-employed) designed to allow firms to preserve sustainable jobs.

Mark Neath, director at Old Mill said: “In many ways Rishi Sunak is between a rock and a hard place in trying to tackle the financial implications six months into this dreadful pandemic. The furlough scheme was always just a bridge to help employers get through the first phase of the crisis, but it couldn’t be expected to continue ad infinitum due to the astronomical costs to the country.

“The new wage subsidy scheme is clearly less generous with employers having to pay more than before, and employees will have to go back into work to qualify. As Sunak said, this new support aimed at those businesses and posts that are viable which sadly means that there will be some business failures and unemployment will increase – but not by as much as it would have done if he had pulled the plug completely.

“The strange thing about this scheme is that, given all the discussion about the German “Kurzarbeit” (short time working) model, this isn’t really a short hours work scheme that encourages employers to cut hours rather than jobs. The scheme is trying to drive behaviour in the opposite direction, from no hours up to one-third, instead of a temporary reduction from full-time which is how the German version works. We don’t yet know whether the incentive works in the opposite direction. Aside from the reduced financial support, businesses will no doubt also be frustrated at having to learn to navigate a third different employment support package in less than a year.

“And of course there is the added issue that it may cause a surge in job losses down the line, because, when this new scheme is combined with the £1,000 jobs retention bonus, it provides an incentive for firms to retain workers part-time until they qualify for the bonus at the end of next January. But whether this then becomes a new so-called “cliff edge” in terms of job losses remains to be seen.”