Chancellor's job package: Many on furlough likely to lose jobs, IFS warns

24 September 2020, 12:42 | Updated: 24 September 2020, 20:01

By Asher McShane

The Chancellor today unveiled measures to stave off job losses ahead of Christmas including a scheme that will keep workers in their jobs on full pay while only working a third of their normal hours.

Under Rishi Sunak's new 'Job Support Scheme', businesses and the Government will pay two thirds of the wages of people in 'viable jobs' who are working fewer hours (at least a third) due to the coronavirus downturn.

Mr Sunak also extended a 15 per cent cut to VAT until the end of March 2021 with employers given the option of repaying their VAT bills over 11 repayments, with no interest.

After the announcement, Institute for Fiscal Studies director Paul Johnson posted online: "This is a v big change from furlough. Less generous. Only open to those who are working a third of normal hours.

"Understandable given need to adapt as economy changes. Can't pay all wages forever. But a lot on furlough now likely to lose their job."

Mr Sunak told the Commons: "Our economy is now likely to undergo a more permanent adjustment. The sources of our economic growth and the kinds of jobs we create will adapt and evolve to the new normal.

"And our plan needs to adapt and evolve in response. Above all, we need to face up to the trade offs and hard choices coronavirus presents and there has been no harder choice than to end the furlough scheme.

Rishi Sunak's jobs package was described as 'less generous' than furlough
Rishi Sunak's jobs package was described as 'less generous' than furlough. Picture: PA

"The furlough was the right policy at the time we introduced it, it provided immediate short-term protection for millions of jobs through a period of acute crisis.

"But as the economy re-opens it is fundamentally wrong to hold people in jobs that only exist inside the furlough."

He said the scheme will cover "two-thirds of the pay they have lost by reducing their working hours".

"The Jobs Support Scheme is built on three principles," he said.

"First, it will support viable jobs. To make sure of that employees must work at least a third of their normal hours and be paid for that work as normal by their employer. The Government, together with employers, will then increase those people's wages covering two-thirds of the pay they have lost by reducing their working hours, and the employee will keep their job.

"Second, we will target support at firms who need it the most. All small and medium-sized businesses are eligible but larger businesses only when their turnover has fallen through the crisis.

"Third, it will be open to employers across the United Kingdom, even if they have not previously used the furlough scheme.

It begins on November 1 and will be in place for six months. The existing furlough scheme ends on October 31.

Employers retaining furloughed staff on shorter hours can claim both the Jobs Support Scheme and the Jobs Retention bonus, Mr Sunak said.

He also announced that the temporary reduction of VAT rates from 20% to 5% will remain in place until 31 March 2021.

This story is being updated