Furlough retention bonus: Too good to be true
The Imprudent Accountant agrees with Jim Harra that, while Rishi Sunak might be heading for greater things, the Job Retention Bonus is a big mistake.
Rishi Sunak is the rising young star of the current government. Already, having rocketed from obscurity to become an important figure in less than six months, he is widely being touted as a future prime minister, conceivably before the next election.
There are two obvious reasons why this should be the case. First, he speaks coolly, calmly and intelligently and inspires confidence. Secondly, his colleagues seem determined to complete in a contest to prove that each is more inept than the next.
However, even superheroes occasionally get it wrong. This might seem a strong assertion to be made by a mere accountant, were it not for the fact that the person who identified some serious problems was none other than Jim Harra, first permanent secretary and chief executive of HMRC.
Until last week, I can’t imagine anybody was aware that the boss of HMRC is obliged to approve every single tax measure announced by the Chancellor of the Exchequer.
There’s a good reason for this ignorance. No former Chancellor has ever tried to push through a measure that was laughed out of court by his senior civil servant.
The most obvious consequence, given that heads of Sir Humphreys are currently rolling on a weekly basis, is that Mr Harra could soon be seeking new employment and claiming constructive dismissal.
However, his caution should also make the public look more closely at the two proposals that have led to this contretemps.
I have to say that the 'eat out to help out' meal deal looks like a bit of a joke. We have all got used to restaurants that offer cheap food on Mondays, Tuesdays and Wednesdays on the basis that no punters want to eat out on those days.
This makes for a great sound bite but is unlikely to cost the Exchequer much or help struggling restaurants to survive. Frankly, it might have been wiser for Sunak to offer the dining out industry a direct cash incentive, although he is probably gambling on the fact that this wheeze will cost almost nothing.
It was telling that, in a series of interviews with young people last week, the general response was, “We are unemployed or on furlough and can’t afford to eat out, even at half price”.
At the other end of the scale, I would wager that most of those who can afford to dine in restaurants will be too scared to do so and won’t get excited at the prospect of saving a tenner.
More interesting is the Job Retention Bonus. As has become standard practice with this government, a wonderful, costly new scheme is announced in a fanfare but without any accompanying details. I hate to suggest it but this is typically because they come up with the headline and then write the article long after the event.
However, on the basis of the limited information that we have, this is the best government-approved “tax” scam that has been introduced in years.
We all know the good old saying “if something sounds too good to be true, then it is”. I am wary but this scheme really does seem to be as good as it sounds, for those that can take advantage.
The big problem for Sunak is that, as Jim Harra has unkindly pointed out: the only people that will get rich are those that don’t need the money to start with or are at least not desperate and on the point of closure.
Any business that is going under before next January will not benefit one iota. Similarly, those that need to make people redundant will do so regardless of this new scheme.
The reason is very clear. Even if you can stagger through with some employees until the end of the furlough scheme in October, paying staff that you do not need in November, December and January, is going to cost considerably more than £1,000. Indeed, the monthly minimum to qualify is £520.
Using the age-old Micawber principle, if something is going to cost say £7,500 and you can only receive £1,000 why do it?
Therefore, unless Sunak’s cunning plan was intended as a subsidy to benefit the relatively stable members of the business community, who were going to keep their staff on regardless, it makes no sense.
To take an example, if you are a major investment bank like Goldman Sachs (have a look at Sunak’s CV), it is unlikely you will make any changes to your staffing policies as a result of the Job Retention Bonus. Instead, you will sit back and receive a nice chunk of money from the government for doing nothing at all.
To be fair to the Treasury, they have cut out one of the more obvious opportunities for abuse, since the bonus will only apply to those 9.4 million workers who were furloughed by 5 July.
This means that employers who had been rotating staff on furlough to be fair will do far better than those who merely put staff on to furlough with the intention of making them redundant in the fullness of time.
For example, if you employ 30 people and have one third of your staff on furlough, you will receive £10,000 at the end of January or nothing if you let the people go. However, if you have already rotated staff, you might have reached the position where all 30 have been on furlough and treble the bonus to £30,000 (or £20,000 if 10 are made redundant).
Enough said, except to note that once again the self-employed and many small company directors have been ignored.