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Could a wage subsidy scheme replace furlough as part of the ‘Winter Economy Plan’?

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Written by: Emma Lunn
23/09/2020
Chancellor Rishi Sunak is thought to be weighing up plans to introduce a German-style wage subsidy scheme to replace the furlough scheme.

According to several reports, an alternative furlough scheme would be part of a package of measures to help businesses through the second wave of Covid-19.

The current Coronavirus Job Retention Scheme is due to finish at the end of October.

Sunak is said to be consulting on options to prevent widespread job losses when the scheme ends. The issue is now especially pertinent with infection rates rising and tougher restrictions being introduced this week.

In a tweet this afternoon, Sunak posted about a ‘Winter Economy Plan’. He wrote: “As our response to coronavirus adapts, tomorrow afternoon I will update the House of Commons on our plans to continue protecting jobs through the winter.”

German model

Germany is currently running a Kurzarbeit or “short work” scheme which involves the German government paying the wages of workers for short-time working.

The Kurzarbeit system already existed before the pandemic and allows employers to reduce employees’ hours while keeping them in a job. The government pays workers a percentage of the money they would have got for working those lost hours.

Germany has recently extended the Kurzarbeit scheme until the end of 2021.

The plan would be similar to proposals made earlier this month by the Trades Union Congress which would involve companies paying staff for the time they are at work, and the Treasury covering part of their wages for time when they have no work.

Frances O’Grady, TUC general secretary, said:  “It’s clear that this pandemic will not be over by Christmas – so neither should state support for jobs.

“The PM says he will put his arms around the workforce. Let’s see him prove it. Warm words will not pay the bills or save livelihoods. The government must come forward with a new jobs protection and training deal that support short-time working to stop the disaster of mass unemployment. Ministers cannot watch from the side lines as good jobs go to the wall.”

Sunak had been expected to extend the availability of state-backed loan schemes for struggling companies this week. However, he is now expected to make an announcement about business loans as part of a wider support package following the new restrictions and fresh fears of a second coronavirus wave.

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