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MNI POLICY: Hard For BOE To Assess Job Support Scheme

(MNI) London

Assessing the likely impact of the Treasury's new Job Support Scheme (JSS) on unemployment and earnings looks set to be a shot in the dark for Bank economists undertaking quarterly forecasts to be included in the November Monetary Policy Report.

The JSS, due to come into force at the start of November as a successor to the Coronavirus Job Retention Scheme, was unveiled as a one-off on Sept. 24 and did not go through the usual UK Budgetary process under which the Office for Budget Responsibility spends weeks privately batting policy assessments and costings back and forth with the Treasury.

Apparent flaws in the scheme are only now being highlighted, and questions are being raised over whether it can survive in its current form. In a speech on Wednesday, BOE Chief Economist Andy Haldane said that while it will tend to reduce risks to unemployment relative to the Bank's August projections, its details are still to be finalised, so it is too early to reach quantitative conclusions on its impact.

"There seems to be quite a bit of pushback against the scheme both from unions but also many employers who are saying actually, this isn't enough for us to hold on to many of our workers," said Carsten Jung, a former senior economist at the BOE and now at think-tank the Institute for Public Policy Research.

While the JSS took elements from Northern European shorter working schemes, it was more costly for employers, raising doubts over how effective it will be at curbing the anticipated sharp rise in unemployment and questions over how to model its impact, Jung told MNI.

If an employee works a third or more of previous hours, the JSS stipulates that employers and the government should pay half each of the lost hours, subject to a cap. The concern of experts is that even combined with other measures it makes it cheaper for employers to cut jobs rather than keep staff on part-time.

"I think many businesses will wait and see if HMT does change its minds and improves the design of the scheme. If it becomes clear that HMT sticks to the current flawed design then I will expect redundancies," Jung added.

The consensus among economists is that UK unemployment is set to rise sharply but there are widely divergent views on where it will peak.

The Bank has forecast that the jobless rate on the International Labour Organisation measure, which requires that the unemployed seek work, will rise to 7.5% while the OBR using a measures that includes discouraged workers in its central scenario had the jobless rate peaking at 11.9% in the fourth quarter, and at 13.2% on its downside scenario, in its latest forecasts
MNI London Bureau | +44 203-586-2223 | david.robinson@marketnews.com
MNI London Bureau | +44 203-586-2223 | david.robinson@marketnews.com

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