Wage subsidies

The CIPD first suggested there was a need for a wage subsidy to help support employers in protecting people’s jobs in our response to the Budget and subsequently sent a proposal to the Chancellor setting out how this might work. Consequently, we were very pleased to see the Government announce the creation of the Job Retention Scheme, providing an unprecedented level of a wage subsidy to help keep people in employment while temporarily furloughed.

Wage subsidies, of some type, were used in a number of other European countries following the financial crisis and recession of 2008/09 but the UK has not previously chosen to intervene in the labour market in this way. The OECD’s assessment in 2010 of 24 wage subsidy schemes was that such schemes “significantly reduced job losses during the downturn while providing income support to workers on reduced working hours.” One macro-economic assessment of the schemes used in 2008-2009 was that a 1 percentage point increase in the share of the workforce covered was associated with a 1 percentage point fall in unemployment and a 1 percentage point rise in employment.

In the current crisis, a number of other EU states have also introduced short-time working schemes which provide government wage subsidies to employers. Ireland, for example, has offered to pay the equivalent of unemployment benefit to some companies who have temporarily shut down to keep staff on the books, worth just over 200 euros a week, or just over 800 euros a month. Denmark has said it will pay up to 75 per cent of wage costs for 3 months, with a cap on the amount of subsidy.

The UK’s scheme, providing an 80% wage subsidy capped at £2,500 for an initial period of three months, has been widely welcomed by employers but the challenge now lies in the implementation. The CIPD has been regularly updating its FAQs on its Coronavirus resource hub on the Job Retention Scheme and furloughing, and the public policy team has also flagged a number of member questions with the Government as they have emerged, where there is a lack of clarity in the official guidance for employers.

The self-employed

In terms of the Self Employment Income Support Scheme, while the Government has estimated that it will support 95% of the self-employed, there is concern that there are some gaps in provision. The Institute for Fiscal Studies estimates that two million people who own their own company are not eligible for support from the scheme because they pay themselves much of their income in dividends, and less through a salary. A salary can be paid partially by the Government, while dividends are excluded.

It is thought that one reason they have been excluded is because of the difficulty in people proving their dividend income is generated by their company rather than through a shared portfolio.

To address this loophole and provide much needed support, the Government could require people in this category to state in their application what proportion of dividend income is generated by their company and should count towards their average earnings. It could also make clear that action will be taken retrospectively against any individuals that have made a false declaration, to reduce chances of the system being abused.

The new schemes

The speed at which the crisis has developed and the subsequent response by the Government has meant inevitably that these new schemes will have teething problems and gaps. The CIPD’s policy team is keen to hear from members on any challenges they are facing to ensure that we can raise any issues with Government and lobby for changes to policy where necessary. If you would like to get in touch please email Public.Affairs@cipd.co.uk.