In recent days, the government of the United Kingdom has been pursuing a COVID-19 plan that struck most of the world’s public health experts as little short of insanity. Instead of ‘bend the curve’ they were pursuing a plan that might best be described as ‘bring it on.’ (The description comes from TPM Reader JG, an American academic teaching this year in the UK.) The idea was to rush through the epidemic quickly, build up herd immunity among the young and middle aged and be well-positioned to avoid a second wave of the epidemic in the fall. Over the last 48 hours the government has shifted radically against this plan toward the shutdown model being adopted around Europe and North America. But it’s the economic plan just announced by the Chancellor of the Exchequer, Rishi Sunak, (more or less their Treasury Secretary) that I want to alert you to. It’s truly radical, especially for a Tory government, and may be a model for other countries preparing to leap over or into the abyss.
In short, the British government has agreed to pay the salaries of everyone who can’t currently work.
Before leaping into the details let me flag a few caveats. I’m relaying my best understanding of the plan, which you can read here. Also note that this is a plan announced by declarative statements. We don’t have fine print. We don’t know if there is fine print. So keep all that in mind.
There are several components of the plan. I focus on the job retention part. The government is offering to all employers in the country that it will pay most of the salaries of those who can’t currently work because of the COVID-19 crisis. Specifically the government will issue grants to cover 80% of these employees’ salaries up to 2,500 pounds per month. In US dollars that’s an annualized salary of just under $35,000.
The government is committing to the plan for at least three months, with extensions as necessary. Critically, they aren’t defining a budget. They say the budget will be unlimited. They are backdating the plan to March 1st.
The plan seems to be, if British employers agree to furlough rather than layoff employees they will cover salaries at this level as long as necessary.
Let me quote the key passage in the announcement.
Any employer in the country – small or large, charitable or non-profit – will be eligible for the scheme.
Employers will be able to contact HMRC for a grant to cover most of the wages of people who are not working but are furloughed and kept on payroll, rather than being laid off.
Government grants will cover 80% of the salary of retained workers up to a total of £2,500 a month – that’s above the median income.
And, of course, employers can top up salaries further if they choose to.
That means workers in any part of the UK can retain their job, even if their employer cannot afford to pay them, and be paid at least 80% of their salary.
The Coronavirus Job Retention Scheme will cover the cost of wages backdated to March 1st and will be open initially for at least three months – and I will extend the scheme for longer if necessary.
I am placing no limit on the amount of funding available for the scheme. We will pay grants to support as many jobs as necessary.
As I said, this is only one part of the British government’s plan. They are doing various increases in social safety net spending, offering loans to business, mortgage holidays, a separate plan for the self-employed. But it’s this part of the plan that is likely the most important both for the British economy and as a model for other countries.
I’ll state again that perhaps there will be details or fine print that make the plan seem stingier or more circumscribed. But on it’s face it is a pretty big deal.