German chancellor Angela Merkel
Chancellor Rishi Sunak will later today detail a plan to support the wages of millions of workers amid the Covid-19 crisis with the UK being the only major country in Europe not yet to have announced such a scheme.
Governments in mainland Europe have deployed a mixture of tax moratoriums, payment extensions on social charges, loan guarantees and wage subsidies for workers who cannot work or move to part-time roles. According to some commentators, the overall effort has not been as well co-ordinated as the EU’s response to the financial crisis of 2008 when a €200bn programme was rapidly put in motion. In many cases ambitious plans have been launched but mechanisms are still in the process of being worked out.
Of course, the aftermath of the financial crash, while a massive shock, followed more predictable lines when compared with the coronavirus outbreak.
Perhaps the most far-reaching scheme set up in recent days was in Sweden where the government has said it will heavily subsidise workers’ salaries so that they will still receive 90% of their pay while working reduced hours. Alongside this businesses have been allowed to defer tax payments for up to a year at a cost of €27.5bn to the country’s treasury, equivalent to 6% of gross domestic product. Denmark has announced similar measures; it is subsidising 75% of salaries for firms promising not to lay-off staff.
Many in the UK would like to see the UK follow the Nordic countries’ lead. Colin Leckey, partner at Lewis Silkin, said: “Employers are crying out for a package like Denmark’s where the state effectively underwrites payroll for a period of time.
“All week we have been hearing from employers scrambling to cut staff pay and hours, put people on unpaid leave, and even implement emergency and wide ranging redundancy exercises, because they are panicking and can’t see an alternative.
“While some sectors are worse hit than others, such as retail, hospitality and leisure worst of all, only this sort of massive state intervention is likely to slow down mass layoffs and measures such as this.”
EU countries have broadly followed their own policies in response, with the European Commission setting up a €37bn regional funding scheme to combat the epidemic. Importantly it has said it will grant EU countries full flexibility to diverge from its fiscal rules to pump state money to where it is needed.
All week we have been hearing from employers scrambling to cut staff pay and hours, put people on unpaid leave, and even implement emergency and wide ranging redundancy exercises, because they are panicking and can’t see an alternative” – Colin Leckey, partner at Lewis Silkin
In terms of income subsidies for affected workers, so far Germany, France, Italy and Spain are setting up schemes, although details of the mechanisms of many programmes are still to be decided. In Germany a Kurzarbeitergeld compensation scheme has been established as it was in 2008 when the wages of about 1.5 million Germans were subsidised, successfully preventing a surge in unemployment – at a cost to the taxpayer of €8bn, according to Deutsche Bank.
Yesterday Labour leadership hopefuls Keir Starmer and Rebecca Long Bailey urged the UK government to offer similar support here.
In France, president Emmanuel Macron has promised unlimited budgetary support for companies and workers that will cost about €45bn. He promised an “exceptional and massive” mechanism to pay workers temporarily laid-off during the crisis and sick leave payments to parents who were not ill but had to stay at home to look after their children because of school closures.
Italy, at the epicentre of the Covid-19 outbreak in Europe, has plans for one-off payments of €500 for each self-employed individual. The government is set to issue grants to companies having to pay large redundancy payments and award a cash bonus to essential workers. Financial support has also been offered to families with children at home.
In Spain, prime minister Pedro Sánchez has announced a moratorium on mortgage repayments and utility bills for people whose income has been hit. He also issued a decree making it easier for firms to temporarily suspend, as opposed to lay-off workers while their benefits would be retained.
On top of these measures a plethora of state aid packages for businesses have been announced in each country in the form of state loan guarantees and deferred tax schemes.
The UK eagerly awaits more details on the chancellor’s scheme later today. For Frances O’Grady, TUC general secretary, the chancellor’s announcements so far had focused on protecting businesses, not workers. She said: “He must now urgently step up the protections that workers need too.
“Many other counties are using government wage subsidies to stop job losses and keep up economic activity. We need it too.
“And government support to businesses must be conditional on them producing a plan to protect jobs and wages.
“Unions and business want to fully play their part in protecting the nation. The government must urgently bring them together a national taskforce, so we can put these measures into action in the best way for working people and our economy.”