This is how German-style wage subsidies work - as chancellor considers options ahead of furlough scheme ending

Wednesday, 23rd September 2020, 11:27 am
Updated Wednesday, 23rd September 2020, 11:27 am
Sources say that the new scheme may be similar to one operating in Germany. (Photo: Shutterstock)

Chancellor Rishi Sunak is reportedly considering wage subsidies to replace the furlough scheme, which winds down at the end of October.

The Guardian reports that "German-style" wage subsidies may be on the cards as part of emergency measures to help businesses through a second wave of coronavirus.

According to sources from business and industry, the Treasury decided to delay an announcement timed for today (September 23) which would have extended the availability of state-backed loans for struggling companies after Prime Minister Boris Johnson announced a set of new restrictions in the fight against the virus last night.

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Mr Sunak is said to be using the time to put together a wider package of support to avoid mass job losses and economic damage.

Business groups say the chancellor may combine the original loan extension plan with a variety of other measures to widen the net of support.

What is the German scheme?

One of the options believed to be under consideration is a scheme similar to one already in operation in Germany - the Kurzarbeit (short work) system.

The system would involve the government paying the wages of workers for short-time working.

Companies would pay their staff for the time they are at work, while the Treasury would cover part of workers' wages for time when they don't have any work.

An industry source told The Guardian that the Treasury favoured a plan whereby workers would have to undertake training or education while away from work as a quid-pro-quo for companies continuing to receive state support.

Since March, companies in Britain have borrowed more than £57bn from the government.

Three of the loan programmes, however, were due to close to applications at the end of this month, with the "bounce back" scheme due to expire at the start of November.

Business groups say a move to introduce a wider package of support will underscore the UK government's commitment to supporting the economy over the next few months.

Political pressure to support business and protect jobs

No final decisions have yet been taken by the chancellor, but sources have said that discussions have been taking place between business leaders and the Treasury over the past few days.

Boris Johnson also implied that further support may be on the way, telling MPs on Tuesday (September 22) that he recognised there were further demands for economic support:

“I know that my right honourable friend the chancellor will be applying, as I say, his imagination and his creativity to helping those sectors in the months ahead.

“But the best thing for them is to get back to life as close to normal as possible by getting this virus down and that is the point of the package of measures that we are announcing today.”

One source told The Guardian that the Treasury was racing to announce fresh support before a deadline next week when businesses are likely to begin cutting jobs as the end of furlough approaches.