What Sunak did was something so typically British. He took a German idea and copied it, and got everything wrong in the process of doing so.
OK, Kurzarbeit etc. Subsidy to putting people on short working hours.
What might have been a good idea turns into a disaster as a consequence. The reality is that employers with people on the scheme will be required to pay them at least 66% more per hour than they would pay equivalent full-time employees, and that differential only get worse when the fact that the employer has to pay the national insurance and pension contributions on the government’s contribution to pay is taken into account. This is likely to increase the cost per hour by more than 80%.
Well, the German system includes that same payment of social security contributions. Which are – around and about – double in Germany what they are in the UK. So that’s not making a German idea worse.
It’s the other bit. I’ve not looked at the details here and am not going to. So, over to you. What does he mean that pay is going to be higher for short timers than full?
The German system splits the costs approximately 1/3 each between state, employer, and employee. An employee on zero hours will sacrifice about 1/3 of their pay, get 1/3 paid by the government, and 1/3 by their employer. The sacrifice proportion (and government subsidy) falls as the number of hours increases. It’s more complicated than that depending on various odd factors, how long you have been on Kurzarbeit etc (after all, this wouldn’t be German bureaucracy if it was simple).
He took a German idea and copied it
Like other great German innovations such as dogging, the mullet, or farfenüguel.
“Employers will continue to pay the usual wages of their staff for the hours they work. For hours not worked, the government and the employer will each pay one third of the equivalent salary.”
Let’s take two workers, each paid £12ph. Worker One works 40 hours, employer pays £480.
Worker Two works 16 hours, employer pays £12 x 16 (192) + 24 x £4 (96) = £288. Which works out at £18ph for the hours actually worked, which is 50% more. But the company also has to pay the NI on the non-worked hours plus the pension payments. I can see it ending up as more than 66%.
It does work out in the German system that the employer is paying a higher rate per hour than they would be under normal circumstances. I think that is the case for any Kurzarbeit level from 0% (at which the employer is paying infinite euros per hour) to 80% (from memory, the highest it goes). This is to discourage abuse of the system, and so that government will temporariliy subsidise employees, but not employers.
Well, of course it does. Anything that involves the employer paying a part-time worker anything over and above the actual hours worked will mean that it’s more expensive per hour to pay the part-timer. That’s inherent in the system and (as BiG has pointed out) is the same in the German system – or indeed the same in any system unless the government pays for the entire shortfall.
The calculation is:
Minimum time worked = 33.3%. Paid in full by employer.
Time not worked (the other 66.6%) is ‘paid’ as 1/3 by employer, 1/3 by HMT, and 1/3 by employee as a pay cut.
So…employer gets to pay 33.3 % plus 22.2% = an increase in pay per hour of 2/3. What they get for that is 1/3 of the employee’s time at 55.5% of the normal cost, but they can keep him employed and in reserve for when things get better. Or not.
If the employee works for 50% of their time then the employer gets to pay 1/2 plus 1/3 of 1/2 = 4/6, or an increase per hour of 1/3 (half the time at 4/6 the cost). Of course our favourite muppet chooses to reference the worst end of the available spectrum rather than the best.
Yo! Trump2020! I can feel it baby!
https://youtu.be/c0ymjv3RO7Q
Aren’t we all ignoring the value to the employer of continuing to have the employee on the workforce for the future? (if there is a future). Shirley, this is the point of the bloody exercise?
“Aren’t we all ignoring the value to the employer of continuing to have the employee on the workforce for the future? (if there is a future). Shirley, this is the point of the bloody exercise?”
What value is there in that, unless the employee is highly skilled and difficult find? Which might be the case in German manufacturing, but less likely in the UK’s service economy.
My friend runs a restaurant for example. The trade is down massively. So does it make sense for her to a) put everyone on part time hours and thus pay extra per hour for the amount of work done, or get rid of X% of the employees and deal with the amount of trade there is with less full time ones? Yes a few of the staff are skilled (chefs, kitchen manager etc), but a lot are not (waitresses/cleaners etc). Better to cut your cloth according to the trade there is, rather than hang on paying extra for labour in the hope trade turns up. Not least because if it does there will be lots of people looking for work anyway.
This sort of wage subsidy scheme works when its dealing with cyclical downturns in trade that will naturally pick up again within the business cycle. Thats not what we are dealing with here, we have a step drop in the amount of trade out there for many of these businesses and pretending its going to come back any time soon is fantasy land. No sensible business person is going to overpay for unskilled labour in the hope ‘something will turn up’. They’ll cut their cloth to suit the conditions out there now, and cross the future’s bridge when they get to it.
Employer has to still be on their feet swinging though–not about to take the count.
What do people think? Is this some viable attempt at a substitute Furlough round 2 or is it marginal? Can we tell how many it might keep off the dole?
Per Guido govt has borrowed 221 billion in fiscal yr to date. So 5 months since April and if cash outflow continues at same rate (excluding Operation Moonshite madness etc) then years borrowing =450 to 500 billion. As Guids puts it near wartime levels.
If lots of poor sods hit the dole 31/10 the pressure on Blojobs medical tyranny will grow immensely. If he can put enuf onto this scheme he might get more time to ruin us with.
So will it get the scumbag breathing time or is it a two bit nothing?
It’s not that simple, Jim. The employer may be up for redundancy payouts. So at least it gives him the option of taking that hit now, when his cash position may not be good. Or moving it into the future when he may be able to afford it or may not need it.
It all gets horribly complicated. I’m looking at modelling the impact, as it seems as though there are so many variables that you can’t get a sensible answer by rule of thumb.
It is nice and flexible, so you move peoples’ hours up and down week by week to cope with varying demand. Having part of the shortfall paid for by Government cushions the blow a bit for the employee if their hours go down. Whether that makes it worthwhile for the employer is going to depend on a whole host of factors.
What BiS says.. It’s not just a straight up-and-down comparison of cost per hour, and who pays for that..
Not really familiar with all the German rules, but the dutch have had a similar system for a decade or two, and between redundancy payouts, various taxes, actual redundancy benefits, sick leave, and more taxes, some of which the employer is also (partly) liable for, it’s become a true H&R specialism.
So much that those worthies hate it because it forces them to actually, y’know… know stuff and work.. It’s nonetheless popular with employers in some branches ( logistics and supermarkets especially) , so there must be some benefit in it..
Spud simply dividing A and B and call the difference Truth, the whole Truth, and nothing but Divine Truth as revelead by his Spudness, is …well… it’s Spud, innit? Nothing new there.
Jim said:
“What value is there in [continuing to have the employee on the workforce for the future], unless the employee is highly skilled and difficult find?”
Well, there’s always some cost – at the very least it takes time to recruit someone, there’s always some induction and training to do (even if it’s just “there’s the bogs, where’s your P45 for the payroll) and there’s a risk that any new bod turns out to be even more useless than the average British worker. Plus the scheme is only for staff who are still working part time, so you do need them for something.
Plus, as BiS points out, there’s redundancy if you get rid of them now.
But yes, you’re right that often that won’t add up to very much, so for some employers it will be easier to sack and rehire later. Especially as this crap looks like going on until well into 2021.
As RichardT pointed out, it also depends how good the staff in question are. Because the difference between good and crap (at any level of required skill) can be enormous. If very employable, you might well prefer to keep a hold on them if that’s a plausible option, even if trade is down and you’re not quite sure what’s next.
The goal is to retain productive workers in viable jobs. Not to provide welfare for dying businesses that don’t work in the new normal. The erudite comments above suggest it will do the job.
Or it could be a case of make it so complicated that no-one understands how it really works, but being politicians and journalists they won’t admit it so just accept what’s said and repeats the praise of others
typically British. He took a German idea and copied it, and got everything wrong in the process of doing so.
Eh? When have we, collectively or singly, tried to ape the Krauts? Successfully or otherwise? Normally the complaint of these arseholes is that we’re not copying the Germans enough.