How to wind down the Job Retention Scheme

The troubling news from the Bank of England today is that the UK is now heading for its deepest recession ever recorded. Read more: How to wind down the Job Retention Scheme

How to wind down the Job Retention Scheme

The troubling news from the Bank of England today is that the UK is now heading for its deepest recession ever recorded.

Based on the current lockdown restrictions being relaxed in June, the Bank is looking for GDP to plunge by 14% in 2020, which in itself could be an optimistic scenario.

The latest Monetary Policy Report shows the UK economy contracting by 3% in the first quarter of 2020, followed by a forecast and unprecedented 25% plunge in the three months to June.

One other assumption the Bank makes is that the government’s jobs retention scheme, currently covering 80% of wages up to £2,500 a month, is phased out with the lockdown.

According to the latest figures, around 6.3 million people have registered for the scheme, which equates to almost a quarter of the workforce. The scheme is due to run through June, with current payout levels suggesting the total cost could exceed £30 billion.

While lessening the current impact of the lockdown, the vast spending, amounting to the same as monthly NHS spending, will have financial effects for the UK for many years to come.

Chancellor Rishi Sunak recently admitted this, saying that the level of expenditure was “not sustainable” and that he is looking at most effective way to wind down the scheme and ease people back into work. However, he also reassured that the scheme will be fully available until the end of June and that there will no cliff edge to fall off.

It appears now that the best way to wind down the scheme would be to extend it, ensuring jobs are retained, but to reduce the percentage of wages covered. If the 80% level were to be reduced to say 50% it would enable businesses to be slowly re-opened and let people work for the balance of their wages until they are back to normal. Its application to different sectors of the economy could match their slow phasing in.How to wind down the Job Retention Scheme

The troubling news from the Bank of England today is that the UK is now heading for its deepest recession ever recorded. Based on the current lockdown restrictions being relaxed in June, the Bank is looking for GDP to plunge by 14% in 2020, which in itself could be an optimistic scenario.

The latest Monetary Policy Report shows the UK economy contracting by 3% in the first quarter of 2020, followed by a forecast and unprecedented 25% plunge in the three months to June.

One other assumption the Bank makes is that the government’s jobs retention scheme, currently covering 80% of wages up to £2,500 a month, is phased out with the lockdown.

According to the latest figures, around 6.3 million people have registered for the scheme, which equates to almost a quarter of the workforce. The scheme is due to run through June, with current payout levels suggesting the total cost could exceed £30 billion.

While lessening the current impact of the lockdown, the vast spending, amounting to the same as monthly NHS spending, will have financial effects for the UK for many years to come. Chancellor Rishi Sunak recently admitted this, saying that the level of expenditure was “not sustainable” and that he is looking at most effective way to wind down the scheme and ease people back into work.

However, he also reassured that the scheme will be fully available until the end of June and that there will no cliff edge to fall off.

It appears now that the best way to wind down the scheme would be to extend it, ensuring jobs are retained, but to reduce the percentage of wages covered. If the 80% level were to be reduced to say 50% it would enable businesses to be slowly re-opened and let people work for the balance of their wages until they are back to normal. Its application to different sectors of the economy could match their slow phasing in.

Tony De Nazareth is a Fellow of the Chartered Accountants Institute of England & Wales, an Associate Member of the Association of Corporate Treasurers and Director of Crowd for Angels, an FCA regulated crowdfunding platform.

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How to wind down the Job Retention Scheme

Source : Business Matters More