Wage subsidy scheme: What is a wage subsidy scheme? How does it work?

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A wage subsidy scheme is expected to be announced today by Chancellor of the Exchequer Rishi Sunak as part of a new economic rescue package to help avoid a “tsunami” of job losses in the wake of the end of the furlough scheme. Mr Sunak is due to unveil several measures in his “Winter Economy Plan” which aims to protect jobs.

Expected measures include wage subsidies, VAT cuts and cheap loans available to struggling businesses.

The Chancellor has ruled out an autumn budget and instead will launch his Winter Economy Plan after MPS and unions warned of the risk of a “tsunami of job losses.

The plan’s aim will be to help the economy rebound in the wake of the coronavirus lockdown which has seen the UK economy plunged into recession.

Express.co.uk has compiled a guide to explain what the wage subsidy scheme is and how it will work.

What is the wage subsidy scheme?

The Chancellor will reveal more details about the wage subsidy scheme from the House of Commons on Thursday.

However, the scheme will work under a system where the employer pays 100 percent for hours worked, with the Government paying a proportion of the remaining full-time wage.

The Government and employers would therefore share the cost of an employee’s salary, with the Government covering a proportion of the hours not worked.

Employees would have to work at least half their contracted hours to qualify and a cap was expected on the maximum top-up available.

The scheme is modelled on one in Germany which sees taxpayers subsidise the wages of workers returning to work on a part-time basis after being furloughed.

The wage subsidy scheme is due to be introduced as the furlough scheme which has protected millions of jobs throughout the pandemic closes in October.

The furlough scheme has been winding down but as new restrictions have been introduced this week, many have raised concerns that the crisis is far from over.

However, with a £40 billion bill for the furlough scheme, the Treasury is seeking a cheaper alternative to the scheme for after October.

The scheme would cost about £500 million a month against the £40bn cost of the furlough scheme.

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According to a recent ONS survey, around a 10th of business employees were still on furlough at the start of September.

This equates to around 2.2 million people.

By the end of October, these employees would either have to pay these wages in full or make them redundant, prompting unions and MPs to warn of a “tsunami of job losses”.

Labour MP Grahame Morris said: “Make no mistake: a tsunami of job losses is in the pipeline within 38 days.”

What other countries have used similar subsidy schemes?

Several other countries have introduced similar schemes, with Mr Sunak studying these models and building the wage subsidy scheme in the UK based upon this.

Germany’s Kurzarbeit or “short-time work” system is an established scheme whereby workers whose hours have been cut because of weak demand in a recession receive top=ups from the Government.

In France, there is a partial unemployment scheme which allows companies to cut hours by up to 40 percent for as long as three years and the Government will contribute enough to ensure employees receive almost the entirety of their normal wages.

Australia is also operating a similar scheme whereby A$1,500 (£825) is offered once a fortnight, falling to A$1,200 (£665) a month by the end of September.

What else will the Chancellor introduce today?

The Chancellor is also expected to reveal measures such as VAT cuts and cheap loans to help boost the coronavirus economy.

Extending the VAT cut to five percent is also a likely move for the post-lockdown industries of hospitality and tourism.

The extension is expected to be lengthened from next January to the end of March.

Four loan schemes are expected to be discussed, all of which are aimed at helping hard-hit businesses.

These schemes will likely be extended until the end of November, with terms increased from six to 10 years to reduce monthly repayments.

Experts have suggested Mr Sunak may look to fortify unemployment benefits.

This may be done by creating more schemes to motivate workers moving into new jobs instead of being given a potentially false hope that their old roles still exist.

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