The powerful Treasury Committee of MPs has criticised the chancellor’s new job retention bonus scheme as inefficient, and called for him to “carefully consider” more targeted support for parts of the economy when the furlough scheme ends.
In a wide-ranging report, the Committee also said the Treasury must quickly come up with a scheme to help companies deal with high levels of debt, as well as a longer-term plan to keep the public finances in good health.
Chancellor Rishi Sunak intends to wind down the job retention scheme, which has supported more than 9m jobs, in October. But economists, business groups and opposition parties have warned it will lead to a surge in unemployment.
In July, Sunak outlined a “plan for jobs” to try to stave off lasting damage. It included a job retention bonus scheme that will pay firms £1,000 for every employee they bring back from furlough.
Yet the Treasury Committee today attacked the scheme, saying it “does not appear to be effectively targeted”.
The Committee said that “most of the funds will be spent on workers who would be retained anyway”. Therefore it “will undoubtedly lead to significant deadweight cost”.
Treasury Committee says viable businesses need more help
The report said the chancellor should “carefully consider” specific support for sectors that have been hit hard by the pandemic, including extending the furlough scheme. They include hospitality, tourism, and retail, the latter of which has cut 125,000 jobs this year.
However, the government has said it cannot keep people in “suspended animation” and wants the economy to adapt.
The Bank of England has backed it up. Its chief economist Andy Haldane told City A.M. this week that he supports ending the scheme, saying there needs to be a “process of adjustment”.
But Treasury Committee chair Mel Stride said the government must support “businesses who, with additional support, can come through the crisis as sustainable enterprises”.
The Committee’s report also raised concerns that small and medium-sized enterprises (SMEs) would not be able to cope with the debts they had taken on during the crisis.
In July, financial services lobby group The City UK warned that more than £30bn of coronavirus lending through government-backed schemes could become unsustainable.
“The government must outline a plan for this within the next three months,” the Committee said. It said the government should “think creatively” as it has in other areas.
It suggested the government could take equity stakes in some bigger firms. And for smaller firms it could use a “student loan-type structure” where firms only pay back debts if they do well.
MPs warn against raising taxes too soon
The report also urged Sunak to lay out a “roadmap” to get the public finances on a “sustainable footing”. UK public debt rose to 100.5 per cent of GDP in the year to July. That was its highest level since the 1960s.
But the Treasury Committee said Sunak need not take immediate action. It said the consensus among experts was that “public debt sustainability, though an issue, was one that needed to be tackled only after the economy was recovering”.
It said that “tax increases imposed too early are likely to stifle economic recovery”. But it suggested the government drop its commitment to the “triple lock” on pensions. The policy currently keeps pensions rising by the higher of average earnings, CPI inflation or 2.5 per cent.
A Treasury spokesperson said: “The furlough scheme will have been open for 8 months and helped to pay the wages of over 9.6m jobs.
“But we will continue to innovate in supporting incomes and employment through our plan for jobs.”
They added: “We are creating new roles for young people with our kickstart scheme, creating incentives for training and apprenticeships.”
Yet Torsten Bell, chief executive of the Resolution Foundation think tank, said: “The chancellor will need to reconsider his plans to swiftly phase out support.
“Extending support for the hardest hit sectors of the economy will be essential to limit the rise in unemployment Britain faces in the months ahead.”