By Callum Keown
The U.K. Chancellor Rishi Sunak unveiled an emergency jobs program on Thursday as part of a wider ‘winter economy plan’ to stave off mass unemployment.
The program, replacing the job furlough one, will see the government support “viable jobs” by topping up the wages of workers on reduced hours in a bid to encourage businesses to retain staff.
It comes after Prime Minister Boris Johnson announced tighter COVID-19 restrictions , including 10 p.m. pub and restaurant curfews, which could last for six months amid rising daily infections.
“The resurgence of the virus, and the measures we need to take in response, pose a threat to our fragile economic recovery,” Sunak told lawmakers in Parliament.
“The government will directly support the wages of people in work, giving businesses who face depressed demand the option of keeping employees in a job on shorter hours, rather than making them redundant,” he added. The chancellor warned he couldn’t save every business nor every job.
All small and medium-size businesses are eligible, while large businesses can apply if their turnover has fallen through the crisis, Sunak said.
The policy is similar to that adopted by Germany earlier this year. Employees must work at least a third of their normal hours, and be paid for those hours, to be eligible for the new program, which will begin on Nov. 1 and run for six months.
The government and employers would then top up the wages, covering two-thirds of the lost pay. For example, an employee working 33% of their hours would receive 77% of their normal pay.
It will replace the existing furlough program, in which the government pays up to 80% of the wages — up to £2,500 a month — of employees unable to work due to the pandemic.
Businesses will also be given longer to repay loans from the government’s Coronavirus Business Interruption Loan Scheme, with the maximum length of loans being extended from six years to 10 years. Applications for the loan program will also remain open until the end of November.
The package of measures also includes support for the hospitality and tourism sectors — two of the worst affected industries — with a temporary value-added tax cut from 20% to 5% being extended to Mar. 31.
AJ Bell /zigman2/quotes/207331643/delayed UK:AJB +0.97% senior analyst Tom Selby said the new program represented a shift in the government’s economic handling of the crisis.
“The new Jobs Support Scheme moves away from the emergency ‘furlough’ lifeline and aims to support only ‘viable’ employment,” he said.
He added: “Taken together, these measures should help ease the pressure currently being felt by businesses and workers up and down the country. However, whether it is enough to prevent a surge in unemployment as we head into winter remains to be seen.”
Carolyn Fairbairn, director-general of business lobby group the Confederation of British Industry, 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.”
Mike Cherry, national chairman of the Federation of Small Businesses, said the chancellor’s update was a “significant step forward” but that more help was needed.
“Local lockdown grants in all four nations should now be extended to firms forced to close that were counting on reopening in the coming weeks but now face the most difficult of winters,” he said.
Andy Davies, managing director of small-and-medium-size-business finance provider White Oak, said: “We’ve seen a significant uptick in loan applications in the past few weeks in advance of the previous deadline, clearly demonstrating that businesses up and down the U.K. are in need of financial support.
“The flexibility of the changes announced today will be invaluable for businesses as they look to shore up their finances over the next six months.”
Investec economist Philip Shaw said: ” Overall the Chancellor is sufficiently pragmatic to recognise that without continued fiscal support, the economy would have faced a possible cliff edge.
“This at least has now been smoothed. In many respects the new Job Support Scheme buys time in the sense that it ends at a stage when the economy may look less fragile and that there may be a functional coronavirus vaccine.”
PwC senior economist, Jing Teow, said: It will be interesting to see what eligible “viable” jobs means. This could raise questions about how to support businesses in structurally-challenged sectors, which may not return to normality for a long time. “
He added: “At the moment there is little appetite to cut back on public spending, with the Treasury taking a much more responsive approach to managing this crisis in the short-term especially if the situation worsens, but expect increasing pressure for the Government to raise taxes, probably next year.”