Job Support Scheme: two thirds of two thirds?

The graphic tweeted by HM Treasury that clarified the maths.

As announcements go, it was far from the clearest. It was only when the above graphic was tweeted by HM Treasury that people properly understood. Rob Moss relays reaction from think tanks, lobby groups, employment bodies and lawyers on the Chancellor’s announcement of the Job Support Scheme.

Many took what Rishi Sunak said to the House of Commons to mean that the Job Support Scheme would enable an employee working one third of their hours to be paid for those hours by their employer and for the government to top up that pay to two thirds of their usual income. Wrong.

What Sunak actually said was that “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”.

One third is paid for the work done. Of the remaining 66% of income that would have been lost for work not done, the government and the employer has to pay two thirds. So two thirds of two thirds? Clear as mud.

So 22% of full pay is paid by the government, 22% is paid by the employer, and the employee takes the hit on the other 23% (1% extra because of all the previous rounding down). The employer pays 55% of normal pay for 33% of the work. The government pays another 22% as shown in the pie chart.

Rishi reaction

Now that everyone understands the maths, what did people think? Shadow chancellor Anneliese Dodds welcomed the announcement but criticised the government for not having done it sooner. Later, her colleague, shadow economic secretary to the Treasury Paul McFadden, told the BBC that the chancellor’s plan put “most of the burden on employers – it’s about 55% against 20%. Is this enough to stop a big increase in unemployment? I don’t think it is,” he said, adding that it would be cheaper to take one person back full time under the plan than take two people part time.

Carys Roberts, executive director of the Institute for Public Policy Research (IPPR), agreed with Dodds: “Many at home will be asking why this government has repeatedly waited until the final hour to give businesses and families certainty in this time. Delay will have cost thousands of jobs.

“This was billed as a winter economic plan, but with the Budget now on ice, big questions remain about the chancellor’s next steps. The economy is in its deepest recession in generations, and he urgently needs a plan for new, green, well-paid jobs. He also mustn’t forget the millions who have lost hours or are already out of work: he must invest in universal credit to prevent poverty and boost spending.”

TUC general secretary Frances O’Grady questioned why the government wasn’t organising reskilling for the hours the employee wasn’t working, an opinion echoed by Peter Cheese, CEO of the CIPD.

“This type of short-time working wage subsidy has a proven track record of supporting employment in other countries and CIPD have been highlighting the need for this type of support for employers following the end of the furlough scheme,” said Cheese. “The announcement is welcomed but can’t provide protection for all, and many businesses and individuals will face restructuring and loss of jobs. Support for re-skilling, guidance, and linking people to where job opportunities do exist will be vital next steps in the coming months.

“We would therefore also liked to have seen a link through the Job Support Scheme to training for staff on reduced hours, in order to make the most of their time not working, help them upgrade their skills, boost their productivity, and provide valuable re-training opportunities. However, we hope this is something that can be developed and added to the scheme once it is up and running.”

Musab Hemsi, partner at HR and employment specialist LexLeyton, questioned the likely effectiveness of the plan: “Sadly, the maths simply does not support six months of sustained employment. Without a clearer trajectory around industry-specific and overall business and economic recovery, many businesses will be left in the dark. Unfortunately the businesses within sectors such as hospitality, leisure and events will not be saved by these measures. Workers who find themselves within in industries where cashflow remains hampered or precluded by Government measures are likely to lose their jobs.

“Many features of the scheme also require a great deal of clarity before it goes live. At present we do not know which companies qualify and the meaning of ‘viable jobs’ and the qualifying criteria for a ‘large employer’.

“Among other sectors, flexibility is going to be central to the success of this scheme. We strongly encourage the government to give employers room to manoeuvre and utilise the scheme to best suit their interests. Businesses must be able to make redundancies in some areas whilst saving jobs using the scheme in others. When German businesses were given flexibility under their wage subsidy scheme, the result was successful with millions of jobs being saved.”

Transferable skills

Kirstie Donnelly, CEO of City & Guilds Group said: “Today’s announcement by the Chancellor feels more like a sticking plaster than a long-term solution that will help to keep people in work.  Whilst the new job support scheme goes some way to saving ‘viable’ jobs in the short term, it also raises the question of what will happen to all of those in ‘non-viable’ jobs in hard hit industries who are set to be displaced – and the resulting job losses that could significantly impact the UK economy.

“This is our act-now moment and we are urging Government to develop a more permanent solution to provide meaningful, long-term support to stem unemployment. In our CSR submission we detail how skills funding could be better used to help people understand their transferable skills as well as the new skills needed to get back into work. Unless we think differently and help people to retrain and reskill throughout their careers we run the risk of a whole generation of people being permanently left behind.”

Neil Carberry, chief executive of the Recruitment & Employment Confederation, said: “Businesses will welcome much of what the Chancellor has announced. The Job Support Scheme is a big step that is needed in the face of a longer crisis. It’s right to focus on supporting people in work rather than those fully away from jobs that may not be sustainable in the long-term. The detailed design of the scheme should be careful to ensure that it incentivises businesses to keep workers on, not let them go.

“Many firms will breathe a sigh of relief at the cashflow support the Chancellor offered – especially  the VAT and loan repayment deferrals. The extension of support for the self-employed is another a key step. The lack of support for small owner-operating Directors of businesses remains a gap in the structure of government support that we would like the Chancellor to address. These people are key to the recovery of our small businesses.

“The disappointing part of today’s announcement was the lack of focus on the new jobs we need to create. Reductions to the cost of employment via national insurance and action on a more flexible skills system are vital. And as welcome as today’s additional support is, businesses are looking to government to deliver on testing, which is the way to ensure we can fight the virus and keep the economy going. Another full lockdown must be avoided.”

Ruth Buchanan employment partner at law firm Ashurst said: “Employers have a decision to make now. Is the work there for staff to do, even on one-third hours, and is it economically viable to pay the employer’s share of the unworked hours on top? Only when employers have done the sums will we know whether significant redundancies can be avoided.”

Complex admin

Nigel Morris, tax director at MHA MacIntyre Hudson, said there is a risk some businesses in need of support will find themselves excluded. “The definition and criteria will determine the success of the scheme, particularly the extent of a fall in turnover required for a larger business to qualify, and how this will be quantified, audited and proven. It’s not a fool-proof measure.

“We’ve seen some businesses ‘bounce back’ and may find they match last year’s performance or experience just a small drop in turnover. But in such a volatile economic environment this may not last; the next six months could be very different. A measure based on how they’ve weathered the storm so far may exclude many businesses from support, forcing them to make staff cuts if they predict tougher times ahead.”

Morris added: “The Coronavirus Job Retention Scheme has been very complex for businesses to administer, and much of the over claim error rate, understood to the up to 10%, has resulted from these complexities. It’s important the new scheme is simple to administer, but robust enough to avoid fraud and properly target support. Otherwise we will see more fraud, errors and mistakes.

“The ‘guaranteed’ 77% gross pay rate seems generous, especially compared to the Coronavirus Job Retention Scheme, where support is reducing to 60% from 1 October 2020. The Jobs Support Scheme will help employees and businesses to better plan rotas and finances for the next six months, but it will be interesting to see the detail, especially the position on supporting national insurance and pension contributions…

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“The scheme should work well where employers can’t provide enough work for employees, but there are sadly many cases where employers can’t provide any work at all.  A targeted scheme for employers who can’t provide a ‘base’ level of work should potentially also be considered.”

Forgotten freelancers

Andy Chamberlain, director of policy at the Association of Independent Professionals and the Self-Employed (IPSE), said: “The support for the self-employed announced today is woefully inadequate. Although it is right for the Chancellor to extend SEISS, the support announced today still excludes one in three self-employed people.”

Tania Bowers, legal counsel and head of public policy at the Association of Professional Staffing Companies (APSCo), was perturbed that there was “no mention of incentives to provide training for individuals during the Job Support Scheme. We will continue to call for a relaxation on the use of the apprenticeship levy funds to enable businesses to up-skill their workforce during periods of downtime. We are also keen to understand more about the prospect of larger firms being able to claim the Job Support Scheme if their ‘turnover has fallen’ during crisis.

“It is still a concern that the existing gap of support for PSC contractors working outside IR35 remains, although we note such individuals can extend payment of taxes due under self-assessment for 12 months from next January.”

Second wave

Lee Biggins, founder and CEO of CV-Library, said: “Unfortunately, the second wave is well on its way and it’s going to be a difficult period for the UK job market. Already, we’re seeing that people who work in industries that have been hard hit are starting to look for opportunities in different sectors; and application rates have soared massively. While more job opportunities are popping up every day, competition is rife, especially as people have been panicking about job security. The new measures may well be delaying the inevitable of mass unemployment, but they will certainly be welcomed by workers and employers alike.”

Many commentators, such as Musab Hemsi above, have queried Sunak’s use of the term “viable” when it comes to which sectors are supported. The chancellor did not clarify what jobs he thought came into this category, leaving many, particularly those working for travel, entertainment and hospitality companies, anxious. Sunak himself told the BBC’s Laura Kuenssberg it was “not for him to make pronouncements” on which jobs are not viable. In which case, who will decide?

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