Publication Social security 29 April, 2020

Working through it: Assessing state employment support responses to the coronavirus

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The coronavirus has produced a once-in-a-generation economic challenge, threatening business and employment across every sector of the economy. In response, countries across the world have implemented policies of state support to allow companies to maintain employees, even if they cannot work due to lockdown restrictions.

This Reform Ideas sets the UK’s Job Retention Scheme against comparable countries’ programmes of support and, while initially successful, outlines how the scheme can adopt measures already in place elsewhere to make it more flexible and allow for support to distributed more fairly across the economy.

Employment Support Schemes

In the UK, there has been the introduction of the Job Retention Scheme (JRS), which allows employers to furlough, instead of lay-off, staff, keeping them on the payroll. The employer can then claim for 80 per cent of employees’ usual monthly wage up to £2,500 a month.

The scheme, in preventing mass redundancies, has been a success even though its main precondition, that the employee cannot work for the company to which they are furloughed, makes it an outlier. Countries such as Sweden, Denmark, Germany, and Canada have implemented schemes which allow for employees to work for short periods and the government to top-up their salary.

Short-Time Working

Currently, many businesses are facing an impossibly difficult decision. Either furlough staff in order to access state support, but drastically reduce their ability to continue. Or, do not furlough staff, have no access to state support, and attempt to maintain payroll even during an incredibly difficult economic period.

Moving towards a short-time working model, as opposed to a blanket ban, gives more flexibility to employers now but also has clear benefits for mitigating the effects of lockdown on employees mental health. Further, it may be a necessity to move towards this type of model, in the event of a phased exit from lockdown as the government has indicated will be the case. 

Clawback Mechanism

To ensure cost-effectiveness, the government must make sure support is given only to individuals and businesses who really need it. Currently in the UK, there are no restrictions on who can apply to the JRS which has been an effective way of making sure support was received quickly. However, in countries such as Germany and Denmark, they are required to prove loss of earnings before access is granted.  

In the medium to long term, the government must make sure state support has gone to the right individuals. To deter abuse and ensure cost-effectiveness, the government should introduce a clawback mechanism in the updated scheme. This would be for all companies who reported profits over a set threshold during this period, requiring them to pay back some, or all of their funding.

Fraud Prevention

Anecdotal evidence suggests that some companies are forcing employees to work despite being put on the furlough scheme. The government must strike a balance between safeguarding against fraud, and not deterring applicants from applying to the JRS. However, the success of the latter means it is now time to focus on the former.

HMRC originally promised a coronavirus hotline and online portal to report abuse, at time of publication neither of these were able to be found. The government should ensure both are well-advertised and easy to access. There should also be a marketing scheme to inform the public and businesses of the penalties for those who are found to have defrauded the scheme.