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Wage subsidies could help employers save ‘thousands of jobs’

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The government is being urged to set up a wage subsidy scheme in order to help hard-pressed employers weather the economic downturn.

The Federation of Small Businesses (FSB) and the TUC have put forward a £1.2 billion plan that would help fund firms that are moving to short-term wages and temporary lay-offs.

Wage subsidies are operating throughout Europe, and the FSB and TUC believe that the scheme could prevent mass redundancies and the loss of essential skills, as well as help viable companies survive the downturn and ensure they are well placed to compete and grow once their financial situation improves.

The FSB/TUC measures include a number of proposals.

The total subsidy per worker plus their Job Seekers Allowance entitlement should amount to 60 per cent of their previous wages.

Employers would meet workers’ National Insurance Contributions during the lay-off or the reduction in hours.

The government should not reduce the level of subsidy where employers are able to make additional contributions to workers’ pay.

Access to the scheme should depend on the long-term viability of the businesses involved. And workers facing reductions in their hours or a temporary lay-off should have the opportunity to take up government-funded training.

Implementing wage subsidies on this scale would cost £1.2 billion, the two organisations have calculated.

Based on paying 600,000 workers 60 per cent of median wages for three to six months, the actual cost of the subsidies would be £3.3 billion.

However, this would be offset by savings of £1.2 billion in reduced unemployment benefit and £850 million in increased tax income.

As part of the subsidy package, the TUC and FSB have also called for the temporary suspension of a benefit rule that forces workers on reduced hours, or those who have been laid-off temporarily, to give up their existing jobs and be available for new work in order to claim benefits after 13 weeks.

With temporary lay-offs and short-time working agreements in the current recession often lasting longer than 13 weeks, the FSB and TUC want the rule dropped so that workers are not forced to give up real jobs to search for new roles that may not exist.

John Wright, the FSB’s national chairman, said: “The government must address the threat of unemployment by putting in place the principles the TUC and FSB are proposing to retain jobs and keep the economy moving. We must follow the lead of other European countries and give viable small businesses the support they need to keep people in jobs and pull the country out of recession.”

Mr Wright added: “This scheme would begin to alleviate the cash flow crisis that is engulfing many small businesses and will enable them to join in a recovery when it comes, so should be regarded as a national investment which will eventually pay for itself.”

Brendan Barber, the general secretary of the TUC, commented: “UK unemployment is spiraling, and we are now losing jobs twice as fast as the rest of Europe. The government must act quickly and introduce a wage subsidy scheme for businesses to help stem the flow of job losses.

“Temporary lay-offs and short-time working agreements are a last resort for employers. But where they are needed, wage subsidy schemes provide a quick and effective way to cut costs for struggling businesses and vital financial help for hard-pressed employees.”