The government and firms will continue to top up wages of workers who have not been able to return to the workplace full time due to the coronavirus.
The Job Support Scheme, which will replace the furlough scheme, will see workers get three quarters of their normal salaries for six months.
It aims to stop mass job cuts after the government introduced new measures to tackle a rise in coronavirus cases.
Chancellor Rishi Sunak said it was part of a wider “winter economy plan”.
Nearly three million workers – or 12% of the UK’s workforce – are currently on partial or full furlough leave, according to official figures. The current furlough scheme ends on 31 October.
Mr Sunak said the new scheme would “support only viable jobs” as opposed to jobs that only exist because the government is continuing to subsidise the wages.
At a press conference, Mr Sunak declined to comment on what defines a job as “viable”.
“It is not for me to sit here and make pronouncements on every individual job,” he said. “What I want to be able to do is to provide as much support as possible given the constraints we operate in. We obviously can’t sustain the same level of things that we were doing at the beginning of this crisis.”
The government’s contribution to workers’ pay will fall sharply compared with the furlough scheme. Under furlough, it initially paid 80% of a monthly wage up to £2,500 – under the new scheme this will drop to 22%.
“The primary goal of our economic policy remains unchanged – to support people’s jobs – but the way we achieve that must evolve,” Mr Sunak said.
“I cannot save every business, I cannot save every job.”
The new scheme begins on 1 November and will cost the government an estimated £300m a month. Companies who use it can also still claim the Job Retention Bonus, where the government pays £1,000 for every furloughed employee who comes back to work until at least the end of January.
Mr Sunak said a similar scheme for the self-employed would be available.
How will the Job Support Scheme work?
Under the scheme, the government will subsidise the pay of employees who are working fewer than normal hours due to lower demand
It will apply to staff who can work at least a third of their usual hours
Employers will pay staff for the hours they do work
For the hours employees can’t work, the government and the employer will each cover one third of the lost pay
The grant will be capped at £697.92 per month
All small and medium sized businesses will be eligible for the scheme
Larger business will be eligible if their turnover has fallen during the crisis
It will be open to employers across the UK even if they have not previously used the furlough scheme
The scheme will run for six months starting in November
Business lobby group the CBI welcomed the government’s plan.
“It is right to target help on jobs with a future, but can only be part-time while demand remains flat. This is how skills and jobs can be preserved to enable a fast recovery, “said CBI director-general Dame Carolyn Fairbairn.
However, Torsten Bell, chief executive of the Resolution Foundation think tank said that the new jobs scheme on its own “will not encourage firms to cut hours rather than jobs because the one-third employer contribution means it is much cheaper for firms to employ one person full-time than two people part-time”.
“But interaction with the £1,000 Job Retention Bonus is really important here,” he said. “When this new scheme is combined with that we’ve now got a big incentive for firms to retain workers part-time until you qualify for the bonus, i.e. the end of January is the new end of October cliff-edge.”
Tracey Sheppard is a cleaner at a leisure centre in Essex who’s been on furlough since the end of March. She said she hoped the new Jobs Support Scheme will help her, but there are no guarantees.
“They’re a very big company that I work for … but I don’t’ know whether they’d be able to afford to keep me on… I just don’t know,” she told the BBC’s World At One.
She said she feels “frightened” because her family only recently moved to the area and this is the only job she can fit in around childcare.
“I’ve just heard nothing [from my employer]. The last time I heard from them was the beginning of lockdown.”
A cut in VAT for hospitality and tourism companies will also be extended until March. The cut from 20% to 5% VAT – which came into force on 15 July – had been due to expire on 12 January next year.
However, the Food and Drink Federation (FDF) said this and the new jobs plan did “not go far enough” in helping the industry which has been hit by the government’s new restrictions to stop coronavirus cases from rising.
From Thursday, pubs and restaurants will have to close from 10pm in measures that could last for six months.
FDF chief executive, Ian Wright, said: “Only by continuing a targeted furlough scheme while the current restrictions remain will we avoid mass long-term unemployment and the decimation of a sector that could otherwise support our economic recovery once the pandemic is over.”
Mr Sunak also announced that businesses that have borrowed money through the government’s loan scheme would be given more time to repay the money.
The chancellor said that small businesses who took out “Bounce Back” loans can use a new Pay as You Grow flexible repayment system. It means borrowings can be repaid over 10 years instead of the original six year term.
The longer repayment time also applied to small and medium-sized firms who borrowed under the Coronavirus Business Interruption Loan Scheme.
Businesses will also have more time to apply for these loans, as well as the Coronavirus Large Business Interruption Loan Scheme and the Future Fund. Application dates for the various schemes had been due to end in October and November.
The furlough scheme was a bridge to carry livelihoods through the crisis. But the bridge needs to reach the other side of the gap to be effective.
The chancellor’s wage subsidy scheme is a continuation of that support – but it’s of a different, less generous type. As employers will have to pay more than before, and employees will have to be working, it’s aimed only at those businesses and posts that are viable.
So some workers will slip through the gap: the government is keen that those in unsustainable jobs are spurred to think about their next move.
And that means unemployment will still rise – although not as far perhaps as the four million some economists previously feared. The cost of the chancellor’s new plan will run into billions, adding to the shortfall of £320bn the Treasury is already facing.
At some point, taxes may have to rise to help plug that but there was no mention of that today, for it may be some time before the economy will be strong enough to take that on.
But the bill facing the chancellor now is likely to be far smaller than the ultimate cost to the economy of doing nothing.