Britain Introduces a Scaled-Back Wage Support Plan


As the country faces a second wave of coronavirus infections, the government doesn’t want to support jobs propped up solely by fiscal stimulus.

Britain’s furlough program has supported the wages of up to a third of the country’s work force. 
Britain’s furlough program has supported the wages of up to a third of the country’s work force. Credit...Andrew Testa for The New York Times

The British government, battling a second wave of coronavirus cases, on Thursday announced a slew of new and extended economic measures to support jobs and businesses. But the centerpiece, a wage-support program, is less generous to workers and employers than the furlough program it is replacing, which expires next month.

And that appears to be by design.

In a somber address to the House of Commons, Rishi Sunak, the chancellor of the Exchequer, outlined the toll the virus continues to take on the country as he said Britons have to “live with” it.

“For at least the next six months, the virus and restrictions are going to be a fact of our lives,” Mr. Sunak told the House of Commons. “Our economy is now likely to undergo a more permanent adjustment.”

The government has been trying to walk the fine line between controlling the spread of the virus and avoiding a second national lockdown. It has also been trying to protect jobs without giving government support to so-called zombie jobs, those that are being propped up only by fiscal stimulus.

Mr. Sunak had been keen to end the expensive furlough program, which has cost the Treasury more than 39 billion pounds ($50 billion) while supporting up to a third of Britain’s work force. On Thursday, he reiterated once again that it would end on Oct. 31 and said it was “fundamentally wrong to hold people in jobs that only exist inside the furlough.”

Britain’s statistics agency said 11 percent of the work force is still on the furlough program.

On Nov. 1 it will be replaced by a new program that will partially top up earnings of workers who have had their hours cut, seemingly inspired by Germany’s long standing Kurzarbeit, or short-work program.

ImageWaiting for customers at a store in Leicester Square, London. The government will now pay just 22 percent of the cost of an employee’s wages.
Waiting for customers at a store in Leicester Square, London. The government will now pay just 22 percent of the cost of an employee’s wages.Credit...Andrew Testa for The New York Times

Under the plan, employees must work at least a third of their normal hours, and the company will pay these wages. For the remaining hours, the company will pay a third, the government will pay a third and the employee will forgo the last portion. The program will run for six months.

Though the Treasury hasn’t published details of how much it expected the plan to cost or how many people were expected to be covered by it, the new plan will probably be significantly cheaper than the furlough. At most, the government will have to pay just 22 percent of the cost of an employee’s wages from before the hours were reduced, and no more than about £700 a month. The furlough program, in its most generous iteration during the lockdown, covered 80 percent of an employee’s wages up to £2,500 a month.

“This is less generous by some way than the main furlough scheme,” and a natural change as social restrictions are less severe, said Carl Emmerson, the deputy director of the Institute for Fiscal Studies. .

Mr. Sunak’s statement on Thursday was even more downbeat than his last major speech in the House of Commons, in early July, when he said Britain was entering the second phase of its economic response to the virus and the government announced a meal discount program for the summer, which proved to be exceedingly popular.

“I know people are anxious, and afraid, and exhausted, at the prospect of further restrictions on our economic and social freedoms,” Mr. Sunak said. He added that “the resurgence of the virus, and the measures we need to take in response, pose a threat to this fragile economic recovery.”

Late on Wednesday, the Treasury said it would scrap the introduction of a budget in November, which would have offered a long-term plan for the economic recovery. Instead it announced the short-term measures, which also included cuts to the value-added tax, a kind of sales tax, for the hospitality and tourism industries, and extensions to government-backed loan programs to businesses and grants for the self-employed. They come just days after the prime minister, Boris Johnson, gave a national TV address in which he set new social restrictions, on top of local lockdowns, that he warned could last for months.

The Treasury had been under increasing pressure to announce a successor to the furlough scheme after the prime minister said the country had reached a “perilous turning point” earlier this week, and opposition lawmakers had pointed to the fact that both Germany and France had already extended their furlough programs.

About a month ago, Germany’s governing coalition said employees placed on furlough or working reduced hours would be able to receive partial reimbursement for lost income until the end of 2021, beyond the program’s normal one-year limit. Under the Kurzarbeit plan, the government pays 60 percent of the wages for the hours not worked, with that percentage increasing to 80 percent if hours are reduced for more than seven months.

France has extended wage subsidies for another two years, but is asking employers to pay a greater share of the cost.

Canary Wharf in London. Prime Minister Boris Johnson said the country had reached a “perilous turning point” in the battle against coronavirus. Credit...Alexander Ingram for The New York Times

Mr. Sunak, 40, is in only the seventh month of the job, taking over Britain’s finances just weeks before the government shut down much of the economy to stop the pandemic. First elected to Parliament five years ago, he was more popular than Mr. Johnson throughout the summer, gathering public support from the furlough program and other measures to help the economy. But now, Mr. Sunak is beginning to scale back some of these fiscal measures.

“I cannot save every business,” he said. “I cannot save every job.”

Of course, the challenge is determining which jobs should be protected. Mr. Sunak said making companies pay for some of the reduced hours would be a signal of which jobs were viable.

But new restrictions imposed this week to close bars, pubs and restaurants at 10 p.m., delay plans to reopen events with large crowds of spectators, and encourage office workers to work from home will affect more jobs and leave employers trying to decide if they can afford to continue paying wages through six more months of restrictions.

Mr. Emmerson said it was a clever design to have employers pay for some of the lost hours but that many wouldn’t be willing to do this. “And that’s why unemployment almost certainly will still rise possibly quite sharply in November,” he said.

Already, nearly 700,000 payrolled jobs have been lost since March in Britain, even with the furlough plan. Mr. Sunak said he hoped the job support program would encourage employers to reduce employee hours rather than lay off staff.

The Resolution Foundation, an economic think tank focused on living standards, warned that companies may have a “strong incentive” to cut workers’ hours without formally putting them on this government program, to avoid incurring the additional wage costs.

“With almost three million workers estimated to still be on furlough, getting the design right of the jobs support is crucial,” Torsten Bell, the organization’s chief executive, said.