Breakingviews - Rishi Sunak’s UK economic safety net has a tear

Britain's Chancellor of the Exchequer Rishi Sunak is seen at Downing Street amid the coronavirus disease (COVID-19) outbreak in London, Britain September 24, 2020.

LONDON (Reuters Breakingviews) - As befits a big buyer of overseas goods, Britain is importing a job retention scheme along the lines of those used in Germany and France. The plan that finance minister Rishi Sunak unveiled on Thursday will help the economy cope with rebounding coronavirus infections and ticks several boxes. But he is failing low-skilled workers whose roles may disappear forever.

The new scheme that begins in November is less generous than furloughing, which finishes next month. The latter has seen the government pay 80% of salaries, up to 2,500 pounds a month. Its successor will apply to those working at least a third of usual hours and see the government pay a third of the salary for hours that aren’t worked, up to a cap of nearly 700 pounds a month. As with Germany’s Kurzarbeit scheme, employers pick up some of the bills when working hours are cut. In the UK, they will pay for hours worked and also have to pay a third of the salary for hours not worked.

The new scheme will cost the Treasury less than the furlough scheme, whose total price tag is expected to be around 50 billion pounds. That matters since public debt was equivalent to UK gross domestic product at the end of July. It also seeks to safeguard viable jobs instead of keeping workers stuck in roles with no future.

That’s why the head of the Institute for Fiscal Studies think tank, who said Sunak’s plan wouldn’t prevent many furloughed workers from losing their jobs, and the Confederation of British Industry, which said hundreds of thousands of jobs will be saved, are both right. Unemployment would have risen sharply in the coming months had Sunak done nothing. But some posts will still be axed, even though he gave business more flexibility on repaying pandemic loans and extended a value-added tax cut for the hospitality and tourism sectors.

Some of these jobs may never come back. Fewer coffee bars and retail roles will be needed if more people work from home permanently and shop online more. Retraining such workers is a bigger problem than in Germany, where the more-skilled manufacturing sector accounts for a bigger proportion of the economy. That incentivises German employers to cut hours rather than jobs. The private sector won’t undertake such training on its own. Sunak is focused on solving the immediate problem but isn’t fixing the longer-term one.


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