Job Support Scheme moves jobs cliff edge to January and sets up difficult conversations between firms and workers

The Chancellor’s Job Support Scheme (JSS) will help stem but not halt the sharp rise in unemployment this Autumn, but avoidable design flaws will reduce its impact, the Resolution Foundation said in response to the Winter Economic Plan today (Thursday).

With public restrictions being ramped up, the Chancellor is right to have announced fresh emergency support for firms and workers in the face of a mounting jobs crisis.

The Chancellor’s scheme amounts to an extension of the existing partial furlough elements of the Job Retention Scheme (JRS), but on less generous terms. Government support is capped at £698 per worker per month, where a worker returns to work for at least a third of their previous hours. Workers placed on the scheme will receive only slightly lower income protection overall than under the original furlough scheme.

The Foundation notes that the JSS is not really a short hours work scheme (of the kind in Germany that encourages employers to cut hours, rather than jobs) 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. For example, under this approach it would cost an employer 33 per cent more to employ two people half-time on the JSS than it would to employ one person full-time (at an assumed salary of £17,000 a year).

The scheme will however encourage some short-time working when considered in combination with the £1,000 Job Retention Bonus (JRB). Employers will have an incentive to retain staff part-time in order to qualify for that bonus, because in many cases the costs in terms of the wage contribution to unworked hours will be below £1,000.

However, the Foundation warns that this approach has two major flaws. Firstly, despite the JSS extending until April the crucial role played by the Job Retention Bonus means that the jobs cliff edge has merely been moved from the end of October to the end of January (which is when firms must retain workers until to qualify for the bonus). After January this scheme will not be effective at encouraging firms to hold onto workers in the sectors that are hardest hit, such as hospitality.

The second flaw is that because the JSS and JRB are separate schemes, firms will have a strong incentive to cut workers’ hours without placing them into the JSS in order to still claim the bonus but avoid significant wage costs. This risks creating difficult conversations between firms and their employees, with workers that are not placed in the JSS losing out on both the employer and government payment to cover the lost wages.

The Resolution Foundation notes that the Government would have done much better to scrap the expensive and poorly targeted Job Retention Bonus, and used those funds to instead introduce a genuine short-hours working scheme with a token, rather than burdensome, employer contribution.

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

“The Chancellor has rightly set out another bold policy package today, responding to the ramping up of covid restrictions with a ramping back up of the economic policy response.

“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.

“With almost three million workers estimated to still be on furlough, getting the design right of the jobs support is crucial. 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.”