The Job Support Scheme will not support enough jobs – risking a major living standards squeeze

The Chancellor yesterday set out a timely renewed package of economic support. But with big unemployment increases still on the cards, and design flaws in post-furloughing job support, Britain is on course for a major squeeze on living standards in the months ahead, the Resolution Foundation said today (Friday) in its overnight analysis of the Winter Economy Plan.

The overnight analysis examines the cost and efficacy of the Chancellor’s main new policy – the Job Support Scheme (JSS) – and assesses what the package of measures means for firms’ and workers’ ability to weather a daunting few months as infections rise, and new restrictions limit economic activity.

The analysis shows that from an employees’ perspective the JSS is broadly as generous as short-term working schemes in other European countries, such as Germany, France and Sweden, offering similar levels of income protection as workers received when fully furloughed.

A single adult homeowner earning £20,000-a-year would face an income reduction of around 19 per cent if they worked a third of their previous hours on the JSS, compared to a 70 per cent drop were they to lose their job completely and move onto Universal Credit.

However, employees only benefit from the JSS where employers choose to use it, and the scheme is far less generous for firms. While the German ‘Kurzarbeit’, which has a track record of encouraging firms to cut hours rather than jobs, sees employers pay none of the wage costs of employees when they are not working, the JSS asks them to contribute half those costs. In many cases this gives them little or no incentive to use the scheme to achieve the Chancellor’s stated objective to “protect as many viable jobs as we can”.

The report notes, for example, that it would cost a firm £1,500 to employ one full-time worker on £17,000, but over £2,000 a month to employ two half-time workers on the same full-time equivalent salary. One full-time worker on £10,000 would cost £800 a month, compared to £1,100 a month for two half-time workers.

The Foundation says that while the cost of the JSS is highly uncertain, if three million workers – a similar number to the estimate of the number of people currently on the JRS – were to use it working half-time it would cost around £4.2 billion over six months.

The Foundation says that to make a reality of the potential of the JSS, the Chancellor should scrap the poorly targeted £7.5 billion Job Retention Bonus and reinvest it into the JSS to make it a genuine shared hours working scheme, with little or no employer contributions.

With the Chancellor’s emergency support reducing, but far from stemming, a major rise in unemployment over the coming months, households now face a squeeze on living standards that they have largely been shielded from so far in this crisis. Those flowing onto Universal Credit will not only see much large hits to their incomes, but the Chancellor yesterday missed the opportunity to avoid a further shock by extending the temporary boost to Universal Credit beyond March.

As a result, the analysis warns that over six million households could face an income loss of £1,000 from next April – at a time when unemployment could still be at its highest level in a generation.

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

“With Britain facing a dangerous jobs cliff edge next month as the Job Retention Scheme winds down, the Chancellor has rightly stepped in to announce fresh emergency support to help firms and workers through a tough period of rising infections and rising unemployment.

“But while the Chancellor has rightly aimed to create a European-style short-hours working scheme, design flaws mean that the new Job Support Scheme will not live up to its promise to significantly reduce the rise in unemployment. Those mistakes could be addressed by scrapping the poorly targeted £7.5 billion Job Retention Bonus, and using those funds to ensure the new support scheme gives firms the right incentives to cut hours rather than jobs.

“While households have to date been protected from the worst of the economic hit from the pandemic, that is about to change. The coming rise in unemployment will mean a major living standards squeeze for families this winter.”

Notes to Editors

The Winter (Economy Plan) is Coming is available here.