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Rishi Sunak’s Jobs Crisis

Today Rishi Sunak told Tory conference that he "can't protect every job." But as Britain faces an unemployment crisis, there are thousands of jobs he could save and create – and is choosing not to.

The furlough scheme has ended. In its place, Chancellor Rishi Sunak has introduced a scheme partly modelled on the “short working time” schemes in other European countries such as Germany. A wave of redundancies is the inevitable outcome.

Businesses must now decide whether to bring furloughed employees back into work or to make them redundant. Under the new scheme, the government will part-subsidise an employee’s usual full-time wages so that employees who are brought back part time will receive two thirds of their usual wage for any remaining hours not worked.

While generous for employees, this puts businesses in a difficult situation as they face substantial increases in costs even when bringing workers back on shorter hours: if a worker returns on one third of their usual hours, their employer will pay just over half of the employee’s usual full-time wages. This is why comparisons with the German scheme are misleading: In Germany, employers do not pay anything for hours not worked, which are fully covered by the government.

Many employers will want to do the right thing by their employees. In cases where firms have long-term relationships with workers, where workers are skilled, and where hiring and firing costs are large, it will be in the employer’s interest – even in narrow profit-maximising terms – to retain workers, particularly if they anticipate a return to something like normal conditions within months rather than years.

But for those in precarious low-skilled jobs, the end of the furlough is a disaster. For these workers, the short-time hours scheme offers nothing: there is no incentive for employers to retain them.

Economists therefore expect a wave of redundancies in the coming weeks and months. Over two and half million people were still on furlough in September. In a recent poll, a third of employers said they planned to make staff redundant. The Institute for Employment studies predicts that well over half a million jobs will have been lost by the end of the year.

Why is Sunak doing this? One possible justification, popular among free-marketeers, is that some jobs are simply no longer viable: it is not the responsibility of the state to preserve jobs that no longer exist and to prop up companies that are going out of business. It is unfortunate, we are told, but the world has changed and workers must look for jobs elsewhere.

There is an element of truth to this: coronavirus has changed the world of work, possibly in irreversible ways. But this does not mean that we should callously accept as inevitable that hundreds of thousands of people, through no fault of their own, should now face serious hardship. The claim that new jobs will rapidly be found are not remotely plausible and comparisons with the last recession are misguided.

After 2008, jobs recovered rapidly. By the time the pandemic hit, employment was at record highs. But the recovery was built on fragile foundations: jobs growth was driven by expansion of precarious, low-wage, low-productivity employment. The UK’s “flexible labour market” is an  economists’ euphemism for “weak labour bargaining power” and it has generated work in quantity not quality.

There is no reason to believe this will happen again. Jobs will not return – even low-paid precarious jobs – in the midst of a pandemic that has shut down whole sectors of the economy. The Chancellor’s actions reveal a fundamental misunderstanding of the situation: his interventions are premised on an assumption that we can return to the post-2008, pre-pandemic “normal.”

From the start, the government has treated a long-term health crisis – one with profound and likely irreversible economic repercussions – as a short-term political crisis. Key policy initiatives have been repeatedly announced on the hoof and at the last minute.

The Chancellor must come to terms with reality. The pandemic is with us for the foreseeable future. Despite the triumphalism of the summer, a vaccine remains the only endgame. Forecasts of widespread availability within the next year are implausibly optimistic. A fundamental change of approach is needed.

First, the government must take responsibility for job creation. Major investments in green industry and expansion of the care sector could replace jobs lost due to the pandemic.

Second, the social safety must be substantially reinforced. Those who have been made redundant as the furlough ends should not face a catastrophic fall in income. Comprehensive reform of the Universal Credit system to provide something akin to a basic income should be considered.

Instead, it is reported that Sunak is planning exactly the opposite, and will announce huge cuts to Universal Credit in only six months time. The move is predicted to push another 70,000 households into poverty. The proposal reveals the hollowness of the government’s claim that it is committed to “levelling up” in the Labour’s lost Red Wall: in these seats, one in three working-age families will be hit by the cut.

The Chancellor’s conference speech was an opportunity to demonstrate that the government understands the scale of the task before it. Instead, he announced nothing of substance and fell back on risible platitudes about the “sacred responsibility” of balancing the books.

The government must accept that there is no going back to the pre-pandemic status quo. Until it does, the unemployment figures will keep rising.