by Peter Franklin
Monday, 23
March 2020
Explainer
15:10

The fatal flaw in the Job Retention Scheme

by Peter Franklin
Rishi Sunak announced the Coronavirus Job Retention Scheme last week

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:

…all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis…

HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month.

- GOV.UK

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.

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