New UK jobs scheme won’t stop major unemployment rise, says think tank

New UK jobs scheme won't stop major unemployment rise, says think tank
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British think tank Resolution Foundation has warned that the new jobs support scheme will not be able to stop “major” increase in unemployment in the UK.

Resolution Foundation claims that Chancellor Rishi Sunak’s new Jobs Support Scheme will only be able to slow down job losses but won’t be able to halt a major surge in unemployment in the UK.

Jobs Support Scheme

Several days ago, Chancellor Sunak unveiled the new emergency jobs strategy that will replace the current furlough scheme. According to him, the new emergency jobs scheme will enable workers to receive three quarters of their normal salaries for six months.

It is aimed at preventing mass job cuts following the UK government’s introduction of new measures to address the increase in coronavirus cases. Sunak said it was part of a wider “winter economy plan”.

Sunak said: “The government will directly support the wages of people in work, giving businesses who face depressed demand the option of keeping employees in a job on shorter hours, rather than making them redundant.”

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He added that the new scheme would “support only viable jobs” and not those that only exist because the government is continuing its wage subsidy.

Compared with the previous scheme, the new one will enable the government to lower its contribution to workers’ pay from 80% of a monthly wage of up to £2,500 initially to just 22%.

“The primary goal of our economic policy remains unchanged – to support people’s jobs – but the way we achieve that must evolve. I cannot save every business, I cannot save every job,” the Chancellor explained.

Prior to the announcement, leading business groups warned that if the furlough scheme is not extended, the country may face a second wave of job cuts. They claim that the UK risks additional job cuts and a slower economic recovery if it fails to extend the current furlough scheme.

The Coronavirus Job Retention Scheme allows employees placed on leave to receive up to 80% of their pay, up to a maximum of £2,500 a month. Initially paid by the government, firms are now contributing part of the wages for those under the scheme.

Almost 10 million workers have benefited from the program but it will end on October 31.

Bank of England Governor Andrew Bailey also called on the UK government to “stop and rethink” its current furlough scheme.

In August, Bailey supported ending the current scheme, arguing that workers should be helped to transfer to another work rather than stay in unproductive jobs.

However, while  speaking on a webinar hosted by the British Chambers of Commerce on Tuesday, Bailey pointed out that some sectors may benefit from continued targeted assistance.

Resolution Foundation’s view on the new scheme

The think tank pointed out that firms would have “little or no incentive” to use the new scheme because they had to pay employees for hours not worked. It said that the plan “will not significantly reduce the rise in unemployment.”

The Foundation also mentioned that approximately six million of the UK’s poorest households could face a reduction in income of up to £20 a week when the government’s temporary support to basic benefits ends in April 2021.

Resolution Foundation chief executive Torsten Bell argued that the new scheme “will not live up to its promise to significantly reduce the rise in unemployment” due to the higher contribution required from firms compared to the furlough scheme

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