James Ball

Sunak’s Job Retention Bonus is a catastrophe

Sunak's Job Retention Bonus is a catastrophe
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Such is the polarised state of the UK in 2020 that to unite the policy wonks of the left and the right a government policy must be either magnificent, or magnificently stupid. Unfortunately for the otherwise fêted chancellor Rishi Sunak, his policy to encourage companies to keep their furloughed workers in employment has managed to fall into the second category.

Like many truly stupid policies, the Job Retention Bonus sounds quite sensible when it’s first set out: for every furloughed employee who is brought back to work and who still has a job by the end of January 2021, the government will pay the company that employs them a £1,000 bonus.

On the face of it, that sounds reasonable – why not reward companies for sticking with their workers? If a business is struggling, making it a bit more financially viable to keep someone in a job seems a good deal all round. The scheme also has minimum thresholds for pay and hours, to make sure people can’t be kept on the books with zero hours worked, just for the bonus. So far so good.

The problems start to manifest pretty quickly when you start translating it into the real-world, though. Let’s imagine a pub chain which furloughs 1,000 workers during lockdown, but which had always planned to bring them back on as soon as they were allowed to reopen. Just for doing exactly what they were going to do anyway, that company is now in line for a payment of £1,000,000 of taxpayers’ money. Not bad if you can get it.

On the flipside, let’s take a struggling company which knew it was going to need to lay workers off, but kept them furloughed while that was possible so they’d get better support during lockdown. The UK’s median salary – what a typical worker earns – is about £29,600 a year. An employer pays national insurance and some other costs beyond that, plus from this month a contribution towards the cost of furloughing. That means for a typical worker to be kept on until the end of January, an employer is looking at outgoings of £10,000 or so. An extra £1,000 might change the maths slightly, but not very much at all.

So we have a plan that pays companies who often need it least when they bring back workers they were going to bring back anyway, while not giving the ones actually cutting staff nearly enough to stop them doing so.

But that’s not the weirdest part. Let’s imagine a factory that’s kept running during Coronavirus, but which furloughed some of its staff. It might have decided it will need to cut 100 jobs to survive this recession, and been planning to make those cuts from the staff it furloughed.

Under the new scheme, if that company instead brought back the furloughed workers and cut the ones who carried on coming in day in, day out, risking their own health during lockdown, the government will reward them for that with £100,000.

The result is a scheme that will give up to £9.4 billion largely to companies who don’t particularly need it, likely saving very few jobs, and potentially increasing the risk of unemployment for people who worked during lockdown.

Given how much Coronavirus has distorted our perceptions, £9.4 billion might not sound like a lot, but it’s an astronomical sum of money. When Gordon Brown notoriously sold off a large portion of the UK’s gold reserve, he was getting relentless flak for it a decade later in 2009 – for wasting ‘just’ £5 billion (at that time). Each year of the benefits freeze, which caused many families real and serious hardship, saved only £1 billion per year.

The single most expensive policy in the chancellor’s first package focused at the economic aftermath of Coronavirus – and what will be the worst recession any of us have lived through – targets billions of pounds to companies that don’t need it, and will save at best a handful of jobs.

This will be contrasted alongside his previous measures which let hundreds of thousands of sole traders, contractors and freelancers fall through the generous safety net provided to others for fear they would get money they didn’t need. The Job Retention Bonus is stupid in political terms and in policy terms (and the two often don’t run together). It could become a matter of headlines week after week for months and years to come.

Will the chancellor have the sense to u-turn on – or at least 'substantially revise' – a policy he never should have agreed to launch in the first place?