Labour Market

Institute of Economic Affairs responds to the Winter Economy Plan


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Responding to Rishi Sunak’s economic statement, IEA Editorial and Research Fellow Professor Len Shackleton said:

“Mr Sunak is right to resist pressure to extend the Coronavirus Job Retention Scheme (CJRS). Furloughing workers only makes sense when there are jobs to come back to, and it is clear that many furloughed workers are no longer in this position.

“Offering support to businesses that are sufficiently viable to keep people in part-time work imitates the successful German Kurzarbeit scheme, and may be an acceptable compromise.

“However, like all wage subsidy schemes it has the potential for fraud and for deadweight, substitution and displacement effects, and its effectiveness needs to be carefully monitored.

“Like the furlough scheme, it cannot continue indefinitely.

“It is possible that the Government will spend a mammoth amount of public money for little reward in terms of jobs saved.

“Rather than simply focusing on supporting existing jobs, the Government needs to be finding ways to make it easier for new sustainable businesses to develop. This involves reducing excessive regulation in both product and labour markets.

“Finally, considering the billions these schemes will cost the taxpayer, it will be essential to make savings in public spending elsewhere.”

IEA Economics Fellow Julian Jessop added: 

“It is right not to extend the extraordinarily generous furlough scheme.

“The new wage subsidy scheme strikes a reasonable balance between tiding companies and workers over a brief period of additional restrictions and uncertainty, while still incentivising firms to let people go and workers to find new jobs, if there is little prospect of them returning to full-time employment in their current role.

“Nonetheless, there are still plenty of concerns – including the ongoing cost of the scheme, the additional bureaucracy, and the potential for fraud and mistakes.

“It would be preferable to have a more targeted approach, whether based on geography or sector.

“This could also have been achieved in other ways, rather than subsidising short-time working. The money might have been better used to support the incomes of those who will still lose their current jobs and by helping the unemployed back into new ones.”

ENDS


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