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Brown resists calls for wage subsidies

The Government has rejected growing calls for it to pay subsidies to firms to encourage them to put workers on short-time or lay them off temporarily, instead of sacking them.

A coalition of employers, trade unions and MPs is pressing the Government to bring in continental-style ‘wage subsidies’ at a cost of £1.2bn a year, to protect 600,000 jobs. Although they won the support of some ministers, they have failed to convince Gordon Brown.

Government sources said the Cabinet had decided that help for individual sectors such as the car industry is a better way to keep people in jobs than a blanket scheme. Ministers fear that companies would take advantage of the payments by rushing to threaten job cuts, or using the grants to protect ‘uneconomic’ jobs.

“Gordon Brown believes the priority is to get [bank] lending flowing to firms and then offer more targeted help,” one source said. “He believes there would be a deadweight cost in which money would go to firms who didn’t really need it.”

The issue was rammed home yesterday when the Japanese car giant Toyota announced cuts in production and pay at its two UK factories, minutes before the Government held a special summit to discuss the automotive crisis.

Ministers say short-term wage subsidies could return to the agenda if the Cabinet was convinced that Britain’s skills base would be eroded by redundancies. Supporters of the scheme warn that the fight back after the recession could be hampered if too many skilled jobs are lost.

Backers include the Federation of Small Businesses, the Engineering Employers Federation and the TUC. They proposed the payment of £3.3bn in wage subsidies to pay 600,000 workers 60% of their previous wages for between three and six months, arguing that the actual cost would be reduced by savings of £1.2bn in unemployment benefit and £850m in extra tax revenue.

Ninety MPs, including 81 Labour members, have signed a Commons motion calling on the Government to look at all options to help manufacturers retain skilled workers, warning that they are being forced into other jobs as more and more firms bring in short-time working.

Wage subsidies are operating in France, Germany, Italy and Spain. But ministers say their social insurance systems are different, with unemployment pay often worth about 90% of previous wages — so the cost of making up the difference is much smaller.

The Welsh Assembly has brought in a ProAct scheme which gives a £2,000 wage subsidy for employees on short time — plus a £2,000 training subsidy for each worker to help them boost their productivity.

John Wright, chairman of the Federation of Small Businesses, added: “We must follow the lead of Wales, and other European countries, and give viable small businesses the support they need.”

The two organisations are also pressing the Government to suspend a rule that forces workers on reduced hours, or who are laid off temporarily, to be available for a new job after 13 weeks in order to claim benefits. They point out that some lay-offs and short-time working lasts longer than 13 weeks.

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