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UK News As furlough winds down, the chancellor is considering a German solution

00:05  24 september  2020
00:05  24 september  2020 Source:   news.sky.com

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The chancellor , Rishi Sunak, is weighing up plans to replace the furlough scheme with German -style wage subsidies as part of a wider emergency support package However, business leaders said they believed the chancellor was using the delay to draw up a wider support package after Boris Johnson

Many analysts warned that August would be as good as it got for the economy and it appears that the chancellor now agrees with them. In reality, the chancellor was always going to have to do more to support the economy even had this week’s restrictions not been announced.

This isn't widely known but Rishi Sunak's furlough scheme was actually in some ways one of the fruits of Brexit.

Anoop Desai wearing glasses and looking at the camera: Chancellor Rishi Sunak will not want to bring back the full furlough scheme © Getty Chancellor Rishi Sunak will not want to bring back the full furlough scheme

Back before COVID-19, the Treasury had a number of options for policies to impose in the event of a catastrophic no-deal Brexit, one of which was to introduce something similar to a German system - the kurzarbeit.

Kurzarbeit dates back a century or so but really came of fame during the financial crisis when it helped shore up the German labour market even as many other countries faced massive increases in unemployment.

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The chancellor was expected to confirm four government-backed loan guarantee schemes would be extended until November. One option believed to be under consideration after talks with businesses and unions in recent weeks is a scheme similar to the German Kurzarbeit (“short work”) system

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The principle is that if companies need to cut workers' hours, the state will step in and help supplement their pay - hence the name, which roughly translates as "short-time working".

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In the fraught days before Boris Johnson imposed his first lockdown, Treasury officials dusted off the plan, made some adaptations and so the Coronavirus Job Retention Scheme - or furlough to the rest of us - was born.

The UK furlough scheme actually went a fair bit further than kurzarbeit, with the state paying a bigger chunk of people's salaries and insisting they stay at home in exchange (whereas the German scheme was more about topping up the wages of people working fewer hours).

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Questioned by MP Meg Hilliers about why pubs and restaurants were subject to the 10pm curfew, the PM Boris Johnson explained evidence suggested coronavirus spreads more later at night after consumption of alcohol, hence the tougher restrictions.

Former chancellor Alistair Darling said the government needed to prepare better for more job losses than it did for the virus itself. He said the current chancellor had “responded well” to the crisis so far, but “may want to be flexible” in winding down the furlough scheme.

Either way, the furlough was born and the rest is history: 9.6 million jobs supported and 1.2 million businesses helped.

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The Chancellor will update MPs on plans on Thursday. Mr Sunak is reportedly working on a German -style scheme to avoid mass unemployment when furlough ends. The new scheme would see the Government and firms sharing the cost of topping up wages for employees only able to work

Britain’s chancellor declared the furlough scheme has “done what it was designed to” on Tuesday, as he resisted mounting pressure to Sunak also highlighted the government’s plans to hand employers bonuses for keeping staff and fund youth work placements as the furlough scheme winds down .

Around three million jobs are reckoned to be supported even now, as the scheme is run down and the generosity of those government payments drops.

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All told, it has been one of the most expensive economic interventions in British history, with a total cost of £39bn pounds and counting.

That is more than the monthly NHS budget, so you can probably see why the chancellor has repeatedly said he will phase it out.

But that comes at a tricky time.

The latest measures of economic activity suggest that while the economy bounced back quite sharply from the initial shock of the virus and lockdown, that rebound may be losing steam.

The latest purchasing manager's index seems to indicate that much of the momentum stopped in September, perhaps after the end of the chancellor's Eat Out to Help Out scheme.

Few parts of the economy have been left untouched by the events of the past six months but some have been more affected than others.

Sky News' analysis of job losses announced so far shows that aviation, retail and hospitality are the worst affected sectors.

Perhaps then it is no surprise that hospitality and aviation chiefs are among those calling for more targeted support in the coming months.

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The chancellor said earlier in May that the government will provide the same level of earnings, but that it will The furlough scheme, aimed at mitigating the economic effects of the coronavirus pandemic, was Image caption Chancellor Rishi Sunak has been asked to consider extending the scheme for

The difference from being furloughed and being laid off is that a furlough is a leave of absence with the hopes to come back to work.

But what would that actually entail?

One option which looks likely is an extension of the business loans schemes which have lent more than £57bn so far.

They are currently due to come to an end this month.

But for some companies - especially those already with high leverage - that won't be enough. They want an extension of the furlough scheme.

And while Mr Sunak does not want to bring back the full furlough scheme, he is considering returning to that original German model - a new kind of "kurzarbeit" or short work scheme for Britain.

Something less generous than the furlough, perhaps, which tops up the wages of workers whose hours have been cut - rather than paying them for staying at home.

In one sense it would be a more generous version of the Job Retention Bonus unveiled in the Summer Statement in July.

Strikingly, both the CBI and TUC have backed ideas along these lines - a relative rarity for both businesses and unions to be in the same court - which would help support about 50% of workers' wages.

The attraction for the chancellor is that this would keep people in the workplace and support jobs that are still viable - but be much less expensive than the furlough scheme.

However, it does not do much for those who cannot even work part time.

Live entertainment, nightclubs, events and such sectors are facing a lost year, where they simply cannot operate at all.

The worry is there will again be more people left behind during this second wave of the virus.

Timeline of key events since UK was put into lockdown .
Unprecedented restrictions were announced on March 23. – March 23: The UK public is told that they will only be allowed to leave their homes for limited reasons, including food shopping, exercise once per day, medical need and travelling for work when absolutely necessary. © Provided by PA Media Prime Minister Boris Johnson addressing the nation from 10 Downing Street (PA Video) All shops selling non-essential goods are told to close, gatherings of more than two people in public are banned, events including weddings – but excluding funerals – are cancelled.

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