Big companies can share the cost of furlough

Ryan Shorthouse14 May 2020
WEST END FINAL

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The Government is staving off ruin for hundreds of thousands of businesses by generously subsidising a good chunk of their wage bill through the furlough scheme, now extended until at least Halloween.

There are ghoulish estimates that the cost is more than £10 billion a month. Relative to other developed countries, the British state is covering a higher proportion of wages and the conditions for receiving the subsidy are more lax.

The Treasury is right to do this, of course. Keeping people on the payroll avoids the profound damage to individual and national prosperity that mass redundancy causes. The Bank of England is optimistic about a relatively quick recovery from the deep recession we are now in because of the scheme. Government does need to gradually wind it down though. It is fiscally expensive and weakens the incentive for employment activity and mobility, which at some point could harm rather than help the economic recovery.

Eligibility ought eventually to be restricted to certain sectors and shielded people. Proportional compensation could be converted to a more limited flat-rate compensation, mirroring what happens with statutory maternity pay.

Capitalism generates the resources for the generous state we need and have. But, as coronavirus has reminded us, businesses would not survive and succeed without government investment in people and infrastructure. Market and state are co-dependent. But in times of catastrophe, the state does the heavy lifting. To reflect this, there will be new obligations on employers.

The helping hand of government comes with a deficit that will need to be controlled by tax and cuts

From August, employers above a certain size should have to contribute at least 20 per cent of an employee’s wages to access the Job Retention Scheme. Alongside staff being able to work part-time even while furloughed, this incentivises them to invest in — and only use state subsidy for — staff they actually want to stay long-term.

Employers pay into an employee’s savings pot for a predictable future event — retirement. Perhaps this now should apply to unpredictable events, like this pandemic? A modest contribution from the monthly pay packet to fund future income protection schemes?

The helping hand of government comes with a hefty price tag — a deficit that will need to be controlled through spending cuts and tax rises. In future, individuals and employers — not just government — will need to prepare better for and contribute to the gigantic costs of unexpected emergencies.

Ryan Shorthouse is founder and chief executive of think tank Bright Blue

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