Sunak has bought himself time, but his big test will come as crisis eases

29th September 2020

Rishi Sunak has abandoned plans for an autumn budget. Instead last Thursday he unveiled a further series of measures to support businesses and jobs.

The centrepiece was the new job support scheme which provides a government subsidy to employers that keep employees on, but only if they are working at least a third of their normal hours. The subsidy requires employers to pay for some of the hours not worked. This is much less generous than the furlough scheme which it replaces. It is quite expensive to hold on to workers part time under the scheme. Employers end up paying 55 per cent of their normal wages for 33 per cent of their normal hours. It would still be cheaper to employ one person full time than two people half time. This will, without question, result in a lot of jobs being lost relative to what would have happened had the furlough scheme been maintained, even in its less generous October manifestation in which employers have to pay 20 per cent of the normal wages of those on full furlough.

So, does this make sense? To assess that we need to look at where it sits in the overall structure of the economic response to the crisis.

Read the full article at the Institute for Fiscal Studies