The fatal flaw in the Job Retention Scheme
Paying workers not to work is a serious error
The Coronavirus Job Retention Scheme was announced last week — to the relief of workers facing imminent redundancy.
This is how the government website describes it:
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HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month.
The reason why the Government is ready to spend so much on this isn’t only to help those without work. It’s also restarting the economy. With millions of businesses poleaxed by the pandemic, it’s vital that they’re able to get going again as soon as the plague relents. But that’s going to be very difficult if they’ve lost most or all of their staff.
Hence the logic of the Job Retention Scheme which would allow employees to be stood-down (“furloughed”) without being laid off.
Unfortunately, there’s a massive catch. Furloughed workers aren’t allowed to work for their employers while they’re on the scheme.
This is fatally self-defeating. The scheme is designed to keep businesses alive in readiness for the recovery — but that goal would be much better served if employees were allowed to work towards it. Businesses may have lost the income they need to pay their workers, but that doesn’t mean there’s nothing for them to do.
There are buildings, equipment and stock to maintain. There are telephones and emails to answer. Business relationships to nurture even if actually doing business is currently impossible. There may be a residual level of orders still coming in to fulfil. Marketing materials and strategies could be got ready. Training could be given. R&D projects could be pursued.
Indeed, to search for a silver lining in a very dark cloud, this could be a time for enterprises to renew themselves. But none of that can happen if everyone is at home, being forced by the Government to twiddle their thumbs.
Of course, there’s an obvious reason why HMG is imposing this requirement. It doesn’t want companies that still have sufficient work coming in offloading their payroll costs on to the state.
Fair enough. But, in which case, only make the scheme available to businesses whose normal income streams have suddenly dried up. This is something that can be verified from the company accounts — perhaps using average turnover over recent years as a yardstick.
This sort of system will be required anyway if there’s to be a Job Retention Scheme for the self-employed.
So, let’s not force any business into hibernation, when this could be a time of preparation.
It’s even worse than that. Far too few details have been released about the conditions of the programme for employers to make sensible decisions. In particular, does it apply
to people made redundant last week? Do employers have to confirm no redundancy for some period after the furlough ends? Can Tier 2 sponsored migrants benefit? What checks will there be? Why don’t we know the programme for the self-employed yet? It is astonishing that this policy is being written on the fly. Didn’t they know two months ago or at least two weeks ago that a lockdown might be a possibility? It’s grotesque incompetence.
It’s written on the fly because it’s urgent.
Will it apply to those who have never worked or just those like MPs?
That’s a valid criticism, but not a fatal flaw. No doubt it can be changed if enough representations are made, but my guess is that it makes it ‘binary’, whereas not having the exclusion would tempt every business which was able to continue in business to claim. That in itself might be worth it, but I suspect that they modelled the answer (‘what if’), and found that it might add seriously to what is already going to be an enormous expenditure.
Businesses have been losing orders since well before the lockdown. Peter Franklin is very right. For any sensible business owner, the most important matter is to make sure the business is leaner and fitter when we recover. This cannot happen when people are at home twiddling their thumbs. Not enough information has been given to enable businesses to make rational decisions. No mention has been made of self employed business owners who occupy premises, keep stock and whose bills for premises rent, contracted commitments (things paid monthly by direct debit) far exceed the level of support the Government has offered the self employed.They still need to pay these even when money coming in is a fraction of their outgoings. Certainly it would be far better to allow people to work to grow the economy. Those companies who get support they did not need could always repay the money as tax when their next accounts are processed. Some safeguards will need to be taken against companies who move profits by one part charging another part of the company for ‘intellectual property’.
Along with many other business owners i think the govt scheme is at best ill conceived and impossible to implement or at worst the sort of dishonest spin we usually associate with greenies and leftists: How can businesses put the money up front and claim it back from HMRC when we are no longer invoicing and therefore have no money left in the company to pay the “furloughed” or those self isolating as they ahve symptoms which may be SARS-Cov2 or just a cold?
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