Chancellor rightly slashes employer contributions to make part-time working scheme fit for purpose

The Chancellor has sharply, and rightly, changed course to tackle the central flaw in the Job Support Scheme (JSS), slashing the share of wages for hours not worked that employers must pay from 33 to 5 per cent, the Resolution Foundation said today (Friday).

Today’s announcement will hugely increase the incentive for firms that are trading at below normal capacity to keep workers on for less than their normal hours, as will the reduction of the requirement that workers work a minimum of a third of their previous hours to 20 per cent. The JSS cost to a firm of keeping a typical furloughed worker on for half of their normal hours has been reduced by 85 per cent by today’s announcement, falling from £233 to £35 a month.

Resolution Foundation analysis shows that that this change will also give employers in many cases a much stronger incentive to cut hours rather than jobs. For example, the total monthly cost of keeping two employees earning £17,000 a year employed at half their normal hours is now just £100 a month higher than keeping one employee on full-time, down from £500 under the old scheme. This cost will easily be outweighed by the Job Retention Bonus that gives employers an extra £1,000 for each employee that remains in their job until the end of January.

Today’s changes apply to the entire country, not just to those areas in higher tiers of lockdown restrictions. That is the right approach given that significant restrictions are now in place right across the country that will see lower demand for hospitality and leisure businesses for months to come.

The change today will significantly more than double the cost of the part-time working element of the Job Support Scheme. The government will now pick up almost 70 per cent of workers wages for hours not worked, up from 33 per cent on previous plans, while the big reduction in employer contributions will see a significantly higher take-up of the scheme.

While welcome, these changes to the JSS come just ten days before the scheme will be introduced. The delay in addressing the central flaw in the scheme will have cost jobs, with firms taking decisions on the basis of the very high employer contributions they believed would be required.

The Chancellor also announced that:

• Money will be available to local authorities in Tier 2 areas, to allow them to make grants to businesses that are severely-impacted by the restrictions, but not legally required to close
• The next grant available to the self-employed through the Self-Employment Income Support Scheme, covering November to January, will be doubled from 20 per cent to 40 per cent of previous earnings.

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

“Today’s announcements are a very welcome, if belated, change of course from the Chancellor: one that gives firms that have been hit hard by the Covid-19 crisis a much stronger incentive to keep workers on at reduced hours, rather than getting rid of them altogether.

“By reducing the typical cost of keeping on a typical furloughed worker from £233 a month to £35 a month, the revised JSS will ensure that more people are able to hold on to their jobs throughout the coming months. Sectors that have been severely impacted, such as leisure and hospitality, will benefit in particular from the new support.

“However, while today’s change in course will make a big difference to many, it has come a month later than necessary and just ten days before the scheme goes live. The priority now is for economic policy to get back on the front foot, ensuring we can protect incomes and control the virus in the months ahead. That means scrapping plans to reduce benefits by £1000 for six million households next April and ensuring those needing to self-isolate are financially able to do so with extended sick pay.”