Covid-19: Support for jobs Contents

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2The extension of the employment support schemes

13.As many as 2.9 million people may have been excluded from the first versions of CJRS and SEISS. The NAO found that people were excluded either because of policy design choices or due to constraints in the tax system. An estimated 1.1 million people were excluded from CJRS because HMRC did not have sufficient data to verify claims, whilst on SEISS, 0.2 million missed out because HMRC did not hold enough data about their self-employment. A further 1.6 million were estimated to have been ruled out of SEISS due to not meeting the scheme’s criteria; for example, because they received less than half their income from self-employment.32 We asked the Departments what issues existed that meant people were unable to receive support and how they were working to resolve them. HMRC confirmed that the eligibility criteria for the extended schemes remained broadly the same as the original scheme. It acknowledged that the structure of these schemes meant that those with more casual working patterns were likely to have found it more difficult to qualify for the schemes than those with more regular working hours.33 It said that the schemes had been designed to help as many people as possible but that it simply wasn’t possible to help everyone.34

14.We were concerned that the extension to SEISS could leave more self-employed people without support than the initial scheme. HMRC based eligibility for the initial SEISS on tax return data up to 2018–19 and estimated, as part of initial planning at the start of lockdown, that this meant around 0.2 million newly self-employed people were unable to claim the grant. HM Treasury told us that it considered alternative arrangements, but that basing the grant awards on previously submitted data helped prevent the risk of people manipulating their returns to receive higher payments. HMRC confirmed that the extension to SEISS would continue to operate on the basis of 2018–19 returns despite HMRC accepting that the 2019–20 tax year ended in April 2020 and returns were starting to come in ahead of the 31 January 2021 deadline. The NAO noted in its report that the number of self -employed people excluded from the initial SEISS could have been greater than 0.2 million if lockdown occurred further from the annual tax return deadline. The SEISS extension occurred nine months after the 2018–19 deadline rather than the two months for the initial scheme. HMRC told us that if it had more up-to-date data on those who were the self-employed it may have been able to operate the scheme differently. Self-employed tax reporting on a quarterly basis to HMRC is due to come in as part of its Making Tax Digital project, but other than the pilot scheme, is not due until 2023.35

15.Two further groups that were largely excluded from support were freelancers and owner-managers of companies. Freelancers generally have short-term contracts with employers and as a result many might not have been on a company’s PAYE system at the cut-off point for furlough. HM Treasury said that was aware of the issues, but that the lack of data held by HMRC and the fact that the tax system wasn’t designed to regularly capture information on such people made it particularly difficult to bring freelancers into the scheme. Some 0.4 million freelancers may have missed out on support from the first schemes.36 We also asked about owner-managers of companies who may have been excluded. HMRC explained that owner-managers qualify for the furlough scheme to the extent that they pay themselves through their PAYE system. It acknowledged that many owner-managers opted to pay themselves a small amount in this way, and rely predominantly on dividend income. HMRC maintained, however, that the schemes were not aimed at supporting investors for the loss of dividend income and that it did not hold sufficient information from tax return data to be able to distinguish between what is investment income and what is income in lieu of salary. We asked HMRC whether other sources of government data could be used to verify the eligibility for the schemes from those groups currently excluded; for example, information held by Companies House might distinguish between different types of dividend income. It said that this was something it had looked at closely over the years from a tax perspective but had not found a way of distinguishing between the different types of dividend income.37

Changes to the schemes created uncertainty

16.The initial CJRS scheme was due to end on 31 October 2020. In September, the government announced that it would be replaced by a Job Support Scheme (JSS) that would top up the wages of workers working at least one-third of their normal hours, with the employer also contributing.38 HM Treasury told us that this scheme was developed at a time when the “hope was that the economy would be largely open and recovering, but with particular temporary restrictions in particular areas”.39 The JSS was amended by government on two subsequent occasions, with an announcement on 9 October stating that where businesses were legally forced to close due to lockdown restrictions the government would pay two-thirds of wage costs, with the employer not obliged to top that up.40 A second modification on 22 October decreased the percentage of hours that an employee would be expected to work for businesses still open and increased the government contribution to topping up wages.41 However, by 5 November the government had moved all of England back into a full lockdown and subsequently announced that CJRS would be extended on broadly equivalent terms to the way the scheme had been operating back in August.42 Government also announced that SEISS would be extended to the end of January 2021 at the rate of 80% of a self-employed person’s trading profits. This was a more generous offering than previous versions of the SEISS extension that had been announced during September and October.43 We were concerned that constant changes to the levels of financial support available across the different schemes created job instability with businesses and employees,44 and also impacted on the future funding settlement for the devolved administrations.45

17.We noted that a large number of business, particularly within more restricted areas, had not been able to operate normally for many months. While support for businesses is expected, it is essential that government provides this money as quickly as possible.46 The Job Retention Bonus was supposed to pay businesses £1,000 for each furloughed worker brought back to work and continuously employed until the end of January 2021.47 We asked HM Treasury how much money it had set aside for the scheme and whether it had been cancelled or deferred as reports appeared to be mixed. HM Treasury told us that this scheme had been deferred as it would not make sense to pay the grants at the same time as extending the furlough scheme and that instead it was something that the Chancellor will come back to next year.48 HM Treasury noted that the Chancellor felt that the broader and more generous safety net provided by extending the existing CJRS was required—rather than implementing the JSS—in order to help keep people in work.49

18.Employees who were let go after 23 September 2020 can be rehired and furloughed again with CJRS extended, but if they were let go before that date then it would not be possible to furlough them. HM Treasury told us this was similar to the approach it took when the CJRS scheme was first announced in March 2020, as eligibility for that initial phase of the scheme was backdated to 28 February to include those made redundant just before the scheme was announced.50 We asked the Departments whether they were concerned there might be some perverse incentives for regional areas to stay in higher lockdown restrictions if it meant that greater funding from the employment support schemes was available as a result. HM Treasury told us that this was not something it was directly involved in, but that the sense it had was that most areas were keen to avoid the restrictions on normal life and economic activity that went with higher tiers owing to the potential damage to jobs, livelihoods and wellbeing.51

Costing the schemes and assessing value for money

19.We asked the Departments how much they expected the extended furlough scheme and the SEISS would cost the taxpayer on top of the £55 billion spent so far. HM Treasury told us that it was not responsible for forecasting the expected cost of the scheme, which would be published by the Office for Budget responsibility in a few weeks. We were concerned that neither Department was able to provide any details on how much the extension to the schemes would cost. HM Treasury said the final costs would depend on take-up levels which in turn depended on labour market forecasts. It told us that it had a broad range of estimates, so it had a sense of what the maximum cost of the extended schemes might be and what range the costs were expected to be within, but we unable to provide the figures during our evidence session.52 We were concerned that, even if the OBR does the detailed number crunching, HM Treasury should at the very least be providing the Chancellor with some ballpark costings before implementing any government policies.53

20.HM Treasury asserted that this was a similar approach to that it had taken when introducing the original schemes in March.54 It told us that, at the height of the initial schemes in the spring, they cost around £10 billion per month, but that this had reduced “quite significantly” over the period to October. It confirmed that it expected the cost of the extended schemes to be lower as a result of differences in the restrictions in place, but did not have the data available to be able to say by how much.55

21.The total cost of the schemes is now estimated to be £76 billion, with OBR estimating that the extensions to the schemes will add an additional £21 billion to the total. We asked the Departments what calculations they had made of the value for money provided by the schemes. HM Treasury told us that the introduction of the schemes in March did not lend itself to traditional cost-benefit analysis because “it was not a marginal change in policy” but “a major structural change” almost without parallel in recent history. It told us that at the point at which ministers had to decide whether to intervene in the economy the cost of doing so could not be known with any certainty. It explained that it had no way of predicting in March what the impact of the schemes would be, in part because it did not know how long the lockdown would last or what the future costs of the pandemic would be.56

22.The condensed timetable for introducing the schemes meant that a lot of the standard documentation that would accompany such a major policy initiative—business cases, options appraisal and detailed cost-benefit analysis—wasn’t undertaken back in the spring.57 HM Treasury asserted that the potential economic costs and human cost of large-scale unemployment if the schemes had not been introduced meant that they were necessary even if it was not possible to quantify this.58 We were nonetheless concerned that while there was a speedy intervention with the schemes initially it was important not to lose sight of the need to undertake value for money calculations on behalf of the taxpayer.59