Will the Chancellor's winter economic plan work?

“I cannot save every job, I cannot save every business,” Rishi Sunak told the Commons

Fair enough, no one expects him to. The question is whether the financial support the chancellor unveiled today will be enough to avoid a surge in unemployment in the coming months.

The extremely successful and extraordinarily expensive Job Retention Scheme has been scrapped and replaced with something that looks far less generous.

Rishi Sunak’s new Job Support Scheme is designed to protect most (77%) of an employee's monthly salary and greatly reduces the cost to the taxpayer. The monthly subsidy from the Treasury is capped at £698 per worker, it was £2,500 when the furlough scheme first launched.  

The heavy lifting will now be done by employers. From November, companies will be expected to pay 55% of an employee's wages in return for a third of their usual hours (the minimum qualifications threshold). That’s not a terribly attractive proposition and is a big step up from the 20% contribution firms will make in October.

The Resolution Foundation has identified another problem with the new scheme. For a salary of £17,000 a year, it would cost an employer 33% more to employ two people half-time on the Job Support Scheme than it would to employ one person full-time.

As the Resolution Foundation puts it: “The scheme on its own in fact gives firms a strong incentive not to engage on short-hours working."

The chancellor argues that the Job Support Scheme is designed to work in conjunction with his Job Retention Bonus (which awards companies £1,000 for every furloughed member of staff retained until January) and amounts to a “very significant cash incentive”. 

In which case, what happens in January when the Job Retention Bonus disappears?

Three million people are currently furloughed. The latest figures suggest that 80% aren’t working at all. It’s decision time. The chancellor is no longer willing to pay people to stay at home, either they return to work part-time or they‘ll end-up on the dole.

The chancellor’s argument that he only wants taxpayers' money to be spent supporting jobs that are “viable” when the health crisis is over sounds perfectly sensible, but who knows when that will be or what those jobs are?

The JSS was the centre-piece of a package of support measures: the VAT cut for hospitality and tourism companies has been extended by a couple of months; all businesses will be more time to borrow from the various emergency loans schemes as well as more time to repay the debts they take on; and the £30 billion of VAT businesses owe to the Treasury for the second quarter of this year now doesn’t have to be settled until 2022. 

Rishi Sunak won’t say how many jobs he thinks his Winter Economic Plan will save. The Confederation of British Industry (CBI), who helped devise the JSS, predicts “hundreds of thousands”.

The likes of Capital Economics, Pantheon Macro and Oxford Economics are more sceptical. They conclude that the impact will be pretty limited, perhaps enough to offset the damage the government’s new restrictions are set to cause. After what they heard today, none is revising their forecasts for unemployment.