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The Government is determined to help people and businesses weather the economic downturn. We have taken a range of initiatives from a fiscal stimulus to loan guarantees as well as bringing forward infrastructure spending to achieve this. Taken together, the total policy support for the UK economy is expected to protect up to half a million jobs, as well as many home and business owners.
Over the past few months there have been a number of calls from business groups, some MPs, unions and the manufacturing industry for the Government to introduce a UK wage subsidy scheme to help employers retain jobs during the current economic downturn.
We have actively examined the case for wage support. We have concluded that they would not be the best way to use resources in helping people and business weather the economic downturn.
Our experience from wage subsidy schemes, including in the UK in the 1970s, is that they can act to create distortions and perverse incentives for other sectors and companies to “bargain” for subsidies. Work by the OECD concludes that wage subsidy schemes are extremely costly. This is because of high deadweight costs as many eligible firms would in fact have retained workers without the subsidy.
However we do understand the anxiety and difficulty faced by people whose wages fall because of shorter working weeks. To support individuals and families those on tax credits see an automatic increase in the money they receive, to compensate for the loss of income. In March 2009, for example, 355,000 families were receiving on average £35 a week more support through tax credits;
It is also worth noting that the Train to Gain supports businesses in identifying and addressing their skills needs. And that through Train to Gain, SMEs in England with fewer than 50 employees can already access compensation for wages where employees are released for training.
Alongside this, the Department for Innovation Universities and Skills (DIUS) and the Learning and Skills Council (LSC) have been actively developing bespoke training packages to meet the needs of individual employers – including large businesses that have moved to short-time working.
We believe that the measures that have been put in place alongside to the underlying strengths of Britain’s economy will stand us in good stead during the economic downturn, but we will continue to explore whether there is more we can do to help UK industry through the downturn, and emerge with the right highly skilled workforce.