Rishi Sunak has introduced a Job Retention Bonus scheme today. The Treasury says of this:
The government will introduce a one-off payment of £1,000 to UK employers for every furloughed employee who remains continuously employed through to the end of January 2021. Employees must earn above the Lower Earnings Limit (£520 per month) on average between the end of the Coronavirus Job Retention Scheme and the end of January 2021. Payments will be made from February 2021. Further detail about the scheme will be announced by the end of July.
One third (supposedly) of the package announced today will go in this - but that assumes every single furloughed employee will keep their job.
Will they? We know they already have not. So, this scheme will not cost the budgeted £9 billion.
The question instead is will it encourage anyone to keep a job open from October to January when they might not have otherwise done so?
The answer is no, it won't.
Why? Because the bonus is £1,000. And most people will go back to something like median paid jobs - with wages on average approaching £30,000 with total cost for three months including pension and NIC of about £10,000. Will £1,000 encourage you to pay out £10,000 you could not otherwise afford to do? No, of course it would not.
So, this scheme will reward those who would anyway have taken their staff back on.
And it will not encourage the retention of a single job that might have been lost, because there is literally no incentive to do so.
In other words, every penny paid out will be for no purpose and not one penny paid out will save a job.
What a farce.
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How much employee and employer NIC would be payable for a typical employee in that three-month period? Approaching £1,000 each?
More I would presume. By some way…
Sorry, I meant approaching £1,000 of primary class 1 contributions payable by the employee (deducted from the gross earnings) plus approaching £1,000 of secondary class 1 contributions payable by the employer (on top).
Essentially, the employer pays over £2,000 *in NICS alone* and gets £1,000 back. What a great deal! Bound to encourage many employers to keep people on…
You are right…
It’s a good job there is nothing else of importance due to happen in January next year. Oh, wait a minute….Memo to Sunak, check your diary.
Sunak’s school report: could do better if he applied himself (to another job preferably)
But BoJo likes spaffing
I assure you that Rishi is doing what his handlers expect him to do so.
Looking at one scenario (median wage earner at company that cannot afford to keep them on) does not mean all other scenarios have the same outcome.
For arguments sake lets consider another scenario, where a company is uncertain whether it’s worth keeping a member of staff that earns £700 per month because of the changing market during the easing of lockdown. October to End of Jan is 4 months so thats £2800 worth of wages + NI on top .. not sure exactly but lets round up to £3000. And the government is offering to pay roughly a third of that amount. So the company knows their cost for this employee has been reduced to £2000 until the end of Jan.
Normally that employee would bring in £4000 worth of revenue over the period but their estimates for autumn 2020 suggest they might get just £2500 worth of revenue for that employee’s output. So it is worth retaining them and seeing how things turn out if they can bring their costs down to £2000. If the costs were still at £3000 then they might decide they were better off making that person redundant.
Hence in that scenario a company might be swayed to keep employees on. WDYT?
£700 per month?
This is the good job we’re trying to preserve?
Really?
And you think that is typical?
I’m sorry – but this is an exercise in the slightly ludicrous as far as I can see, and all to claim a political point that is not there to be had
Just for context, a minimum wage (£8.72 per hour) for 35 hours per week, would be £1,220 a month (i.e. four weeks) already. Employer NICs at 13.8% (taking account of the £732 threshold) would be another £67 . So around £1,300 per month for a full time job at minimum wage. In four months, that is over £5,000, and the government will give the employer £1,000 back. Is that really going to make much difference? At the margin, perhaps; but not for most people.
At £2,500 per month (annual salary of £30k, close to median earnings), there would be £240 of employer NIC (plus £200 of employee NIC) each month, as suggested above. And this doesn’t even consider income tax. In most case, the Chancellor will be taking in much more than he is giving back.
Over four months, the total amount of NICs paid by employer and employee would be about £1,000 for someone earning around £1,750 per month (£21,000 per year, or about £12.50 per hour for a 35 hour week).
Thanks
Sunak on the radio this morning was saying it makes sense, given the income distribution of those who have been furloughed. So what is that distribution? Is there any public data? What is the median?
It will be fascinating to see how much of the “up to £9 billion” is paid out, and then how many of those people would have been kept on anyway without the £1000 bonus.
If you really want to encourage jobs, cut taxes on jobs, particularly taxes that mean earned income is taxed more heavily than unearned income.
Agreed!
This is an incredibly stupid scheme. It would have been much better to give a bonus to employers if they take on someone who is currently unemployed. The bonus could have been more significant as it would involve fewer people and it would also incentivise job creation in companies actually already considering expanding despite the virus.
Sorry Richard. I’m not trying to be political. I don’t exclusively support any political party. But I just didn’t understand your comment that “it will not encourage the retention of a single job that might have been lost”.
My hypothetical job might be a good job. Who knows? Might be part time? Are you saying low paid jobs shouldn’t be retained?
I’m not saying it’s typical either … but just a possible scenario that would mean more than zero jobs might be retained due to the announced scheme.
I admire your work with Tax fairness and transparency but struggle to understand your reasoning on some other issues. Always happy to debate though.
Remember we are talking nine million people so we can talk averages
So I have used them
So your assumption does not hold
Mine does
Sure a few exceptional part time employments could just be saved
So let’s say that this does apply to 8.95 million jobs where my costing works
Since basic maths can show that this is a pointless policy, what’s Rishi actually trying to achieve? A pat on the back from the right Tories?
It’s what the Tories have done since 2010 – window dressing – throw a few positive headlines to the masses but continue to destroy the country as you set out in 1979 behind the scenes.
Sunak also said (did he not) that these were merely palliatives for harder times to come – because he will inflict them.
A lot of the public will think that the Tories therefore have ‘done their best’ when he does and they might well get away with it.
Emigration anyone? Please form a queue – socially distanced of course.
As you say!
£1k ‘reward’ in January is worthless unless the actual reality of business is ok anyway.
The Tories, like Shunak, are largely bankers and they look at the big numbers – which potentially £9bn is – but, for once, they should be looking at the micro and no employer facing difficulties would these days be ‘incentivised’ by that!
He has no idea. That’s what comes with having a millionaire as Chancellor.
Utterly useless, (and Cummings was supposed to be bright?)
I’m confused as to why employers, who only employ people because they need labour to operate their businesses, need to be incentivised to keep people in employment. The business will employ the labour it needs, no more, no less. No business is going to retain staff which it no longer needs, on the basis of a £1k bung; certainly not in the long term.
This is yet another policy whose only purpose is to funnel money to Conservative party voters and donors (being as most business owners are Conservatives). The large corporates, with thousands of people on furlough, are in for a large windfall, all for being civically minded enough to keep employing the staff, without whose labour they could not operate.
The looting of the public purse by this government, be it dodgy PPE contracts, planning department shadiness, or this latest wheeze, has become incredibly blatant. It’s almost as if they know what’s coming, they know the gig is up, and are making out like bandits whilst they can.
Well if you are a business and have costs of £3000 per employee over the 4 months to January and you’re not sure you can survive with those costs and the government offers to lower your costs to £2000 per employee then you might stand a better chance of survival.
Sure you could fire some employees then hire them back later if there’s an upturn, but if lots of businesses do that the people losing their job will stop spending and hence the upturn may not happen as quickly or at all as the economy shrinks further into a recession. I think it’s that stability, that upward momentum of the economy that the government is trying to encourage and to avoid the pain of job losses.
But very, very few people have c posts of £3,000 over 4 months so shall we stop talking about very, very marginal issues as excuses to make Sunak look competent when he isn’t?
Graham,
Give your head a wobble. This is a one off payment, no business is going to make long term commitments on staffing on the basis of a one off bung. Quit it with the faux naif routine, ‘I’m not trying to be political’, you say; rubbish. There’s nothing wrong with expressing political views, but there is a problem when you try and present yourself as someone without a firm ideological position, and then proceed to parrot the government’s propaganda du jour.
Wouldn’t it be nice for a hairdresser or taxi driver to come on Radio 4 just after Rishi and say something along the lines of ‘what a ****ing waste of money that is’
I use hairdressers and taxi drivers because of the old joke ‘it’s a pity the people who know how to run the country are busy cutting people’s hair and driving them places’ Only now it is true that the average Joe knows more about what works.
My wife is working at hospital and fighting a COVID 19. But government never ever give any extra money and just clip on Thursday. Some people just relax at home then took 80% salary and another 1000GBP.
Please, somebody, tell me, why to work at NHS!
I’m concerned that many MPs are now thinking seriously about MMT, and that the Government is perhaps thinking that MMT provides cover for them to be profligate with money. For example the privatised test and trace program seems to shovel money to the Government’s friends, with not much to show for it. Please would you post a description of what goes wrong and exactly how it goes wrong when money is wasted, while running an MMT-based economy?
There is no such thing as an MMT based economy
MMT simply describes what is possible
And fraud is possible however an economy is managed
You are tying together unrelated issues
I am employed as the single worker of my own business. My wages are around the £520pcm running this business, however I aim to grow. I am trying to now run a business that’s been smacked hard by covid. My salary is way below the median average you’re all talking about, and our household income is pitiful compared to most UK families, but we’re working hard to keep our small business going and hope to make some ‘median’ money from it one day. Since we have started again, I am back part-time/furloughed part-time, and we are supporting lots of other small businesses by purchasing their stock and services. (Also I am self employed working in large theatres, which are now closed, with no opening dates in sight. My work has been cancelled till Feb 2021, with a reduced fee from then on and Self Employed Grants are 2 months shorter than Employed Furlough payments, ending in August rather than October.) This £1000 is a massive help to us as a company, but if I can’t get it because I earn too little, what does that leave me with? I just have to keep going or close down. £1000 is a huge help for us. Don’t scoff at it. Plus it’s not for the employees, it’s for the companies, and remember not all companies are huge!
I have made the point that there are excptions
You are that, and good luck
But that does not make this a good scheme
You need better support than this scheme can offer
…. clearly Boots and John Lewis have not “got the message” (see FT article just posted) from Rishi!!
The job losses were probably inevitable but nonetheless sad.