The Job Retention Scheme beyond 1 June...
An article on the BBC website reports on new figures from the Resolution Foundation estimating that the cost to the government of the Job Retention Scheme (JRS) could be between £30 - £40bn over 3 months, broadly similar to the amount the government spends annually on the police and safety.
It also estimates that about a third of the private sector workforce could be furloughed.
On any analysis those figures are truly eye watering but they do give rise to some interesting questions.
The first of these questions concerns the longevity of the JRS.
It is scheduled to run from 1 March to 1 June 2020 but whether the JRS is extended will depend very much on the progress in combating the coronavirus and whether we are ‘past the peak’. It seems reasonable to assume that even if the current restrictions are lifted to some extent, some preventative measures, such as social distancing, will remain. That in itself, will inhibit a return to business as usual and inevitably impact on the ability of many sectors of the economy, in particular leisure and hospitality, to get back on their feet.
Consequently there may be strong calls for the JRS to be extended, even past the point where restrictions are lifted and beyond 1 June in order to support business transition back to something that resembles the norm.
Balancing the above are questions around the affordability of the JRS.
Even a proposal to extend the JRS for a further month will have a significant cost if the Resolution Foundation figures are anywhere near accurate. This also comes at a time when tax receipts will be dropping as the amount remitted via PAYE and NICs falls due to the effect of furloughing.
At the same time there have been nearly a million extra claimants for Universal Credit. In addition to this, the government is also facing the prospect of no VAT payments coming in for the June quarter and a postponement of self-employed tax payments in July, thus depleting the Treasury’s coffers further.
So what does this mean?
This represents an acute dilemma for the government; turning off the JRS tap will almost inevitably result in large numbers of furloughed employees being made redundant as their employers are unable to retain them without the support of the JRS. That will lead to further claims on Universal Credit and the social consequences that flow from mass unemployment; just think back to the early 1980’s if, like me, you’re old enough.
"There are two things that are certain about the JRS. One, the government will have to borrow to pay for it; and two, that tap will be turned off eventually."
Having just come out of 10 years of austerity, we have to face the real prospect of going back into it. Those sectors that have not needed to avail themselves of the JRS (i.e. the public sector) may find that they have to bear the long term cost of paying for it.
The post-JRS world will also look very different than the one we knew before. Businesses will need to start thinking very carefully now about how they manage their affairs once the support net of the JRS ceases. That may involve making significant redundancies. Collective redundancies are subject to strict rules around consultation and complying with those rules takes time, time which a businesses may not be able to afford from a cash-flow perspective. For that reason alone, businesses need to be making those plans and starting to implement them now.
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All information in this document is accurate at the time of writing. It is meant for general information only and is not legal advice.