Will the Chancellor’s new measures help keep Britain working?

by | Jul 9, 2020 | News

Yesterday the Chancellor, Rishi Sunak, announced a number of measures to help boost the economy and prevent mass unemployment. Three measures in particular are relevant to Keep Britain Working’s campaign:

  1. A £1,000 jobs retention bonus to incentivise employers to bring furloughed employees back and keep them in employment
  2. A “kickstart” job creation scheme for young people, whose wages will be paid for six months
  3. A £2,000 payment for each apprentice that companies employ

Will these measures be sufficient to protect jobs after the furlough scheme ends in October? 

  1. The jobs retention bonus

There has been considerable anxiety that the end of the furlough scheme will mean that mass redundancies were merely postponed rather than averted. Already this month companies have announced thousands of job losses. Mr Sunak has been adamant that the furlough scheme will end in October but this new announcement will soften the blow.

Businesses will be paid £1,000 for every employee who has been furloughed and who is brought back into employment and kept in employment until the end of January (provided that they are paid above a certain level). 

An employee who is on the median wage (£585 per week) will cost their employer about £8,500 in salary, employers’ national insurance and pension contributions if they are employed from November to January – and close to £10,000 if the contributions towards salary and taxes for August to October are taken into account. The bonus therefore is worth about 10% of the cost of the median employee. 

Businesses will welcome this subsidy and it might tip the scales when a company is pondering whether or not to retain an individual. But if the economy is not bouncing back strongly at the end of this year, a 10% subsidy might not make a lot of difference. It will also benefit large companies who were already planning to bring back some furloughed employees more than small businesses with only a handful of employees who are teetering on the brink.

The Labour party have argued for a more flexible approach to the end of the furlough scheme, with furloughing continuing longer for certain sectors or for businesses affected by temporary lockdowns like the one in Leicester. It is certainly true that a business that is not able to operate at all or whose trade has been dramatically reduced is not going to keep an employee on just for £1,000.

  1. The kickstart scheme

The government has recognised that the current crisis has had a disproportionate impact on young people. Under the “kickstart” scheme, the government will pay for six-month work placements for 16 to 24-year-olds at minimum wage for 25 hours per week.

Work experience is clearly beneficial to young people’s future career opportunities. Currently, access to unpaid or low paid work experience and internships is often limited to those from privileged backgrounds due to the cost of undertaking such programs. Such a scheme might help to increase access to those from less privileged backgrounds to such opportunities.

It has been noted that the scheme sounds similar to the Future Jobs Fund that was introduced by the last Labour government during the last downturn. This was scrapped by the Coalition government, who argued that the scheme did not lead to long-term employment – they claimed that once the placements finished, half of the people on the scheme became unemployed again. This scheme is open to all employers, rather than being solely for jobs that brought benefits to the community, which may make the difference. However, the long-term success of the scheme will depend on the economy growing strongly by the end of the six months.

There might also be unintended consequences of the scheme on other areas of the workforce, in particular, those currently at risk of redundancy. There is a risk that businesses could be incentivised to replace current workers with young people on work placements in order to reduce labour costs. Those over the age of 24 might also struggle to find employment opportunities as more companies favour these work placements.

  1. Grants for apprenticeships

The introduction of the Apprenticeship levy has not been a roaring success, with the number of apprenticeships last year down 21% on the year before the levy came in. Keep Britain Working’s James Reed has argued [link here] for a deregulation of apprenticeships to boost their take-up as one of his five ideas for the economic fight back.

The government has not announced any changes to the rules over apprenticeships, but has introduced a new grant of £2,000 per apprentice taken on (£1,500 for those over 25). This is a step in the right direction, but without reform of the apprenticeship scheme rules it might not have as great an impact as it should.

Like the kickstart scheme, this scheme is time-limited, only open for applications up to January 2021. Without a sustained economic recovery, there is a possibility that all these schemes, however successful they are in the short-term, could be postponing the pain for another six months.

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