Furlough scheme 2.0 to cause more job cuts as cheaper to pay one employee full time than two part-time think tank warns

RISHI Sunak's new furlough scheme could cause MORE job cuts as it is cheaper to pay one employee full-time than two part-time, think tank warns.

The Resolution Foundation has said it could be an autumn of mass unemployment as cash-strapped firms choose to cull part-time staff.


Under the new programme announced by the Chancellor yesterday those working at least a third of their normal hours will receive 77 per cent of their salary, capped at £697.92 per month, with the Government forking out 22 per cent of wages.

The original furlough scheme meant 80 per cent of an employee's wages were on the Exchequer's dime.

But Resolution Foundation warned the scheme amounts to "an extension of the existing partial furlough… but on less generous terms.

And it could part-time staff at risk.

They said: "The (scheme) is not really a short hours work scheme… when considered in isolation.

"The scheme on its own in fact gives firms a strong incentive not to engage in short hours working because it requires employers to contribute one third of the wages for the period when an employee is not working."

They explain that if an employer had to stump up most of the cost, and it would in fact be 33 per cent more expensive to pay two staff to work half-time, than it would to employ one person full-time on a salary of £17,000 a year.

If an employee is working 50 per cent of their normal hours, they will receive 83 per cent of their normal pay check.

The employer will have to cover 67 per cent of this cost, with the Government picking up 17 per cent of their wages.

That means the cost of two part-time employees if £22,780 – compared to £17,000 for one full-time.

Mr Sunak's Job Retention bonus – which gives employers £1000 to bring back furloughed staff and keep them on at least part-time until January – undermines the new scheme, policy boffins warned.

It means employers will be able to cut their staff's hours until January, claim the bonus, and not put them on the new scheme which would take more money out of their pocket.

The dreaded "cliff-edge" at the end of the furlough scheme has simply been moved to January, the think tank said.

Chief exec of the Resolution Foundation Torsten Bell said: "The Job Support Scheme will help to stem some of the rise in unemployment this Autumn.

"But design flaws in the scheme mean that, despite existing until April, it has really only moved the jobs cliff-edge from October to January, when the full impact of the virus is still expected to be with us.

"And those same flaws risk giving firms a strong incentive to avoid using this scheme to protect workers incomes where their hours are cut.

“The Chancellor would have been better to scrap the expensive Job Retention Bonus and used the money saved to create a genuine short-hours working scheme that would keep many more workers in jobs over the difficult months to come.”

Mr Sunak admitted yesterday it would be "impossible" to predict how many jobs could be saved by the new package of support.

He said another Covid wave “posed a threat to our fragile economic recovery”, admitting: “I cannot save every business, I cannot save every job.”

The boss of the Institute Fiscal Studies Paul Johnson gave a dire warning yesterday, saying there could be 2 million job cuts by the end of the year.

Mr Johnson warned: “I suspect by the end of the year there will be two million jobs fewer than at the beginning of the year.”

He added: “The new job support scheme represents a significant new intervention from government to support jobs through the crisis. But it is significantly less generous than the furlough scheme it replaces.”

 

 

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