Rishi Sunak's plan to pay wages at coronavirus-hit firms will cost 'billions every month', says Institute for Fiscal Studies
6 min read
Rishi Sunak's "unprecedented" plan to pay most of the wages of employees not working as a result of the coronavirus will cost the Government billions of pounds a month, a leading think tank has said.
The Institute for Fiscal Studies (IFS) said the "huge" move to allow the state to cover 80% of a worker's salary - up to £2,500 a month - could come with a price tag of £10bn over three months even if just 10% of employees were affected.
The analysis came as business groups expressed "relief" and trade unions welcomed the latest attempt to soften the economic blow of the Covid-19 outbreak.
But Labour said ministers had not gone "far enough or fast enough".
Mr Sunak vowed that the new 'Coronavirus Job Retention Scheme' would be made available for all firms who keep staff currently not working as a result of the economic turmoil caused by the outbreak on their payroll.
HMRC will backdate pay to 1 March once the programme is up-and-running at the end of April.
The Chancellor said he was "placing no limit" on the amount of money available to fund the scheme.
IFS director Paul Johnson said: "The cost of the wage subsidy package is unknowable at present but will run into several billion pounds per month that it is in operation.
"Suppose 10% of employees are affected. That could cost the Government in the order of £10 billion over three months. If more take advantage of the support then the cost will be proportionally higher."
The IFS also said the policy had been "designed in haste" and would need "considerable speed and flexibility from HMRC" in order to get it going.
Mr Johnson said: "As a result there are obvious concerns about its design. An employer with 10 employees might have enough work to keep them all occupied half time. This policy gives a very clear incentive to furlough half of them and keep half of them on full time. There may also be concerns about policing this especially for owner managed companies paying wages to the owner."
The radical move has already won the backing of major trade unions, with Unite boss Len McCluskey - a longstanding ally of the Labour leader Jeremy Corbyn - saying: “The Chancellor has done the right thing and we look forward to working further with him in the coming days to get this money into the hands of those most in need."
Tim Roache, general secretary of the Labour-affiliated GMB union, said: "We’re not natural bedfellows with a Conservative Chancellor, but in a time of unprecedented national crisis it’s important we work together for the good of workers and the economy.
"This package of support will help. Securing jobs through government underwriting of wages is hugely welcome, and that’s what we've been calling for action on.
"We will be pushing hard for all those employers that can afford it, to pay an extra 20% to secure the incomes of their employees."
And he added: "There is still a lot to do, there are still sectors and issues we need to address - not least availability of protection equipment for frontline workers and protection for the self-employed.
"We will continue to stay in close contact with Government as the situation develops, and we’ll continue to fight for every worker to be supported in this crisis."
'LANDMARK'
The CBI, which represents hundreds of thousands of businesses, said the Chancellor had unveiled a "landmark package of measures for business, people and jobs".
The group's director Dame Carolyn Fairbain said: "The Chancellor’s offer of substantial payroll support, fast access to cash and tax deferral will support the livelihoods of millions. Firms and employees will respond with relief and determination."
"This is an unprecedented crisis - we must do everything we can to ensure that everyone has a guaranteed income and no one is left struggling to get by."
The FSB, which represents small businesses, meanwhile gave the "unprecedented intervention" a cautious welcome, and said many small employers would be "breathing a huge sigh of relief".
But they warned that employers were still facing an "immediate, potentially terminal cash flow crunch" as the scheme gets up and running.
The group's director Mike Cherry said: "Therefore it’s vital that banks play their part, and ensure that any small business owner seeking a 12 month interest free loan from Monday is helped immediately – there are no excuses."
And he added: "We need to see the Prime Minister’s ‘whatever it takes’ approach extended to the self-employed – that means following the lead of other nations by guaranteeing 80% of incomes for those who lose work."
LABOUR: SUNAK SHOULD GO FURTHER
As well as the wage guarantees, Mr Sunak unveiled a £1,000-a-year boost to Universal Credit and working tax credit payments for the next 12 months in a bid to support those who had already lost their jobs.
Self-employed people will also be able to claim in full Universal Credit at a rate equivalent to statutory sick pay, which is currently £94.25 a week.
But Labour has reacted with disappointment to the Government's emergency proposals, saying Mr Sunak had "shifted direction but unfortunately not far enough or fast enough".
Shadow Chancellor John McDonnell, who has called for a guarantee that employers will pay the remainder of staff wages on top of the state subsidy, said: "The Chancellor's wage protection plan sets out no obligation for employers to keep staff on, and no commitment to full wages being paid, with the cap on incomes meaning that many people will take a significant pay cut."
And he added: "This will also take some weeks to roll out at a time when wages need to be guaranteed more urgently.
"Other benefits, including for carers, are not being lifted adequately.
"The Chancellor said he would do whatever it takes, but he can and should go further - and we will keep working constructively with Government to ensure the best possible response to the Coronavirus crisis."
The SNP's Westminster leader Ian Blackford said of the plans: "While they do not go as far as we would have liked they will provide significant support to protect people's jobs and incomes - and meet a number of the key areas we discussed with the Prime Minister.
"The SNP will continue to press the UK government to deliver more support for all our people so no one is left behind. In particular, we will seek further support for the self-employed, improved sick pay, and strengthened welfare protection for everyone."
The sweeping announcement by Mr Sunak came as Boris Johnson confirmed that every pub, club, cinema, theatre, restaurant, gym and leisure centre will now be ordered to close as part of efforts to slow the spread of the coronavirus and ease pressure on the NHS.
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