JRS continues but companies need to begin sharing the cost

The UK is in the jaws of the most severe downturn we have probably experienced for centuries.

Unemployment has risen sharply but the situation have been worse were it not for the government’s Job Retention Scheme.

The scheme is deigned to incentivise companies to hold onto their staff by paying their wages - and it’s proved popular.

Seven-and-a-half million people and counting are, in effect, being paid by the government to stay at home. These are employees, the chancellor insists, who may otherwise have been laid off.

  • Joel Hills on the reaction from businesses to the chancellor's announcement to extend the furlough scheme

Almost one million companies have furloughed their staff. These are companies, the chancellor says, which may otherwise have failed.

The level of taxpayer support - 80% of pay up to £2500 a month - is unprecedented and it has just been extended until the end of October.

At a time of high anxiety, this will be hugely reassuring for many. It will also be mind-blowingly expensive for the government.

Paul Johnson, of the Institute of Fiscal Studies, estimates that the cost of the scheme to the taxpayer is “probably heading up towards £100 billion now".

Business groups had warned of mass redundancies if the scheme wasn’t extended beyond June. They are celebrating, but they will also be aware that, from August, the chancellor has indicated he will expect them to share their cost.

JRS continues in its current form until the end of July but, thereafter, it will be finessed in an attempt to reduce the financial burden on government and to incentivise companies to restart work.

Employers will be expected to make contributions, the level has yet to be set. This is a vitally important detail that’s missing. The risk here is that companies begin laying off their staff as soon as they are required to start paying for them again.

Employees will be allowed to begin working while partially furloughed - the part-time hours they do will be topped up by the state. This important change carries the risk of fraud but it also offers the prospect of safer, smoother passage back into a job.

The return to work, in many cases, will probably be gradual. A process not an event. It is unlikely to be “full speed ahead” immediately, activity will have to shift-up through the gears.

The scheme is being made more flexible and the need for it to be is obvious. We don’t know how the virus will develop, when restrictions to contain it will lift and how household and businesses will behave when they do.

Not everyone who has been furloughed will end up having a job to return to - the success of the JRS will be measured by how many do.

The chancellor has not ruled out a further extension beyond October but the longer the scheme runs, the more it will begin to feel like unemployment.