Chancellor right to speed up part-time furloughing, and go slow on employer contributions

The Chancellor has sensibly set out a cautious timetable for bringing employer contributions into the Job Retention Scheme (JRS), alongside extending the Self-Employment Income Support Scheme that will be very generous in many cases, the Resolution Foundation said today (Friday) in response to the Chancellor’s announcement.

The Foundation says that the cautious timetable for introducing employer contributions is needed given the Government’s one-size-fits-all approach to the JRS, which will see the hardest-hit sectors making the same contribution as sectors relatively unaffected.

However, even the limited contributions required from August is likely to see significant layoffs in the hard-hit hospitality sector, in which an estimated two million employees are currently furloughed.

The Foundation notes that the employer of a typical full-time employee in hospitality (earning £21,300 a year) on furlough will pay 7 per cent of their usual wage costs in August (via employer NICs and pension contributions) rising to 25 per cent by October (when wage contributions reach 20 per cent). It says a better approach would have been to treat the hardest-hit sectors differently to the rest of the economy.

The Foundation particularly welcomes the decision to bring ‘flexible furloughing’ forward a month from to July. Allowing furloughed staff to partially return to work is important to both supporting the incomes of those returning to work, but doing fewer hours than they used to, and to encouraging a stronger recovery.

Finally, the Foundation notes that the Self-Employment Income Support Scheme, which has been extended by three months with a slight reduction in generosity, will still be very generous in many cases.

Some self-employed workers hardly affected by this crisis are able to receive grants from HMRC worth up to £14,070 over six months – far more than the support for those actually losing their jobs will receive via Universal Credit.

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

“The Chancellor is right to have taken a cautious approach to phasing out the Job Retention Scheme, and to have brought forward the badly needed change to allow furloughed workers to return part-time.

“These are difficult policy decisions, balancing the need to encourage safe returns to work with the absolute priority of avoiding a large second surge of unemployment claims when the UK is already on course for its highest unemployment in 25 years.

“The one-size-fits-all approach will prove tough for hard-hit sectors, even with the initially low level of employer contributions. Policy makers should prepare for significant redundancies among the two million hospitality workers currently furloughed.

“The extension of support for self-employed workers will be badly needed by many who have seen their incomes disappear during this crisis. But the scheme is incredibly generous for others who have been hardly affected but still qualify for grants of over £14,000. The hundreds of thousands who have actually lost their job are receiving far less support via Universal Credit.

“These announcements continue the pattern of Government protecting families from much of the income falls created by this huge economic crisis. But they also begin the much harder phase of starting to withdraw support. More difficult days lie ahead for many households.”