Government sets out unprecedented but essential pledges to underwrite wages and strengthen the safety net

The Chancellor’s hugely welcome and unprecedented pledge to pay 80 per cent of the wages of employees without work to do in struggling firms is a crucial step change in the government’s economic response to the current crisis, the Resolution Foundation said today (Friday).

Resolution Foundation analysis shows why it is so crucial to act, with this crisis proving a huge and sudden shock to our economy that is concentrated on lower earners.

Lower-paid workers are most at risk of job losses as they are concentrated in sectors directly affected by the social distancing measures, such as retail (excluding supermarkets), hospitality and tourism. Around 4.7 million employees work in these sectors.

With around 3.5 million employees also very likely to be affected by the closure of schools and nurseries (some of whom also work in the directly affected sectors above), the Foundation estimates that around 7 million employees – around a quarter of the workforce – will be profoundly and swiftly affected by the current economic shock. Today’s support is therefore needed urgently.

The Foundation welcomes the fact that the government is taking forward the Foundation’s proposal for a new Statutory Retention Pay scheme, paid at 80 per cent of an employee’s previous wages, up to a high cap of £2,500 a month (above typical earnings). The Foundation estimates that should the scheme support one million employees it would cost around £4.2 billion over the initial three-month period the government has set out it will run for.

The Foundation adds that keeping staff paid, and on the payroll, will give workers and firms more certainty about how they will get through the months ahead, reducing wage bills for firms and easing the income shock for families.

As well as helping the individual workers concerned, it will also reduce the scale of the coming recession by reducing falls in consumption that cause wider economic damage. Critically, such an approach focused on retaining workers will also help firms to recover quicker once the worst of the crisis is over.

The Foundation also welcomes the substantial £20 a week (£1,000 a year) increase in the value of unemployment support, taking it to its highest real-terms value ever, after two decades of stagnation or declining value. This move will benefit four million families, and is part of £6 billion increase in benefit spending.

An increase in housing support, costing a further £1bn, will help renters by undoing the cuts since April 2012, restoring the link with rents in the local area.

The big gaps that remain in support are for two million low earners that are not entitled to Statutory Sick Pay and for the self-employed seeing work dry up because of the crisis, beyond those benefitting from the abolition of the Minimum Income Floor in Universal Credit.

Torsten Bell, Chief Executive at the Resolution Foundation, said:

“Britain is in the midst of a profound economic shock, and job losses are already mounting with low-paid workers on the frontline.

“These unprecedented times call for unprecedented measures, and that is what the Chancellor has committed to today – with a £4.2 billion retention pay scheme to keep firms’ wage bills down and family incomes up.

“This will help stem the rise in unemployment, but it will not prevent it. So, the £7 billion increase in the generosity of the safety net, including for those losing their jobs and renters is also very welcome.

“While this scheme will take time to put in place, employers have now had the commitment from the Chancellor that wages will be paid and should do their bit by holding off laying off staff. Help is on its way, and it is everyone’s interests to keep workers paid, and on the payroll.

“It is welcome to see the government using the Resolution Foundation’s proposed Statutory Retention Pay scheme to underwrite workers’ wages. The priority now is to get up-and-running as soon as possible, while exploring other ways of supporting the self-employed who remain very exposed to falls in their incomes.”