Rishi Sunak admits unemployment will rise despite 'radical' job support scheme

Tom Belger
·Finance and policy reporter
·4-min read
Bar stools up on tables in a closed pub in New Cross, south London, following the government ordered closure of bars, clubs and restaurants due to the Coronavirus outbreak.
Prime minister Boris Johnson ordered pubs and bars to close at 10pm, in what business chiefs called a 'crushing blow' – with fears a job support scheme will not offset the impact of such measures. Photo: PA

The UK chancellor Rishi Sunak has admitted unemployment will continue to rise, even as he unveiled a package of new crisis measures designed to save firms and jobs.

The finance minister set out a string of new policies in his “Winter Economy Plan” on Thursday, which firms cautiously welcomed but warned did not go far enough to prevent lay-offs.

Sunak announced an extension of four coronavirus loan schemes for firms, VAT cuts for the hospitality sector, and more time for firms and individuals to pay taxes. Sunak also extended grants for the self-employed for six months, though only covering 20% of average monthly profits.

But the centre-piece of the announcement on Thursday was a “job support scheme,” drawn up as a successor to the furlough scheme which has kept millions of workers employed.

The scheme is designed to prevent redundancies, by topping-up the wages of workers who work and are paid for at least a third of their typical hours. The Treasury said employees working a third of their usual hours would receive 77% of their normal hours.

Sunak called the policies a “radical intervention” in the labour market and said saving jobs was his “number one priority” in a statement to MPs in the Commons.

READ MORE: Sunak unveils ‘winter economy plan’ to safeguard jobs

But he admitted job losses would continue to rise as he answered questions from journalists in a Downing Street press conference later on Thursday. “Of course unemployment is already rising and will continue to rise. That’s a complete tragedy.”

Sunak defended the decision to replace the previous furlough scheme, both to support more “viable” jobs and to cut costs.

“We obviously can’t sustain the same level of things we were doing at beginning of crisis, but nor would it be right to do so either because the situation has evolved.

“This is now something we know is going to be a fact of our lives for a while to come, and that means the economy is going to change and adapt. I can’t promise everyone can go back to the job they used to have.”

The chancellor said the job support scheme could cost about £300m ($382m) a month if employers sought funds to keep on a million workers. But he said it was “very tricky to be precise” about total costs given uncertainty over many of the the assumptions behind any such calculations. Analysis by Capital Economics estimated the total cost at £3bn, with another £2bn for the other new measures.

Adam Marshall, director-general of the British Chambers of Commerce (BCC), called the overall policy package a “shot in the arm” for the UK economy, and other national business groups welcomed the new support.

But the government’s focus on protecting only “viable” jobs has sparked controversy. Asked what the term meant, Sunak said the “test” was whether employers were prepared to keep staff working and paid for a third of their usual hours.

There are fears firms in many sectors such as events, travel and aviation, still hamstrung by restrictions and the pandemic, will not be able to afford to cover enough of staff’s wages to qualify. The scheme also forces employers to match government top-ups beyond hours worked.

“Why sign up for a scheme that will actually cost them money?” said Tony Wilson, director of the Institute for Employment Studies (IES).

He said the government was “assuming a lot of goodwill,” and warned cracks in previous income schemes that saw some employers choose not to help staff “could become gaping holes in this scheme.”

READ MORE: UK retail sales rise at fastest pace in 18 months

Torsten Bell, head of the Resolution Foundation think tank, was more confident employers would retain staff as they could also claim a separate £1,000 job retention bonus. But he warned it could simply “shift the jobs cliff edge” until after the bonus is paid in January.

Meanwhile Paul Reed, chief executive of the Association of Independent Festivals, said the measures were “not even a band aid” for the ailing live events sector. He told PA surveys suggested around half the workforce had been made redundant, and called for more targeted help for hard-hit sectors.

UKHospitality CEO Kate Nicholls said: "We need government to go further in hospitality, recognising the greater restrictions imposed upon us, and pick up the full cost of unworked hours."

Sunak declined to rule out scaling up the scheme if needed, however. Asked about doing so, he said the measures needed “time to let them take hold,” but added: “We always stand ready to do what’s necessary.”