A better normal

The covid pandemic has shown the need for stronger safety nets to protect workers – and businesses – against unexpected events, including the need for either national lockdowns, or individual self-isolation. The government’s response to national lockdowns, in the form of the furlough scheme, was one of the stand out successes of the pandemic response. We should learn from its success, putting in place a permanent short-time working scheme.

But almost two years into the pandemic, it is a source of national shame that the government has not fixed the UK’s exceptionally poor sick pay provision. Strengthening this vital safety net must be part of a new and better normal in the year ahead. And government must help families facing a cost of living crisis after a decade of social security cuts, by increasing Universal Credit.

Providing job security through a new short-time working scheme

The measures set out in this report should help to keep workplaces open, and limit the need for wider restrictions, including those which sharply reduce demand, or require businesses to close. But when these restrictions are required their impact would be significantly minimised if workers and businesses could rely on predictable support being in place to protect jobs. That’s why the TUC called in August 2021 for a new, permanent, short-time work scheme to be put in place to provide workers and businesses with certainty in the face of future challenges.

Building on the success of furlough

The Coronavirus Job Retention Scheme (JRS), and accompanying Self Employment Income Support Scheme (SEISS), were introduced at speed in March 2020, following discussions with unions and business. While far from perfect, the schemes have been recognised as one of the successes of the government’s response to the pandemic, with the CJRS – or furlough scheme - supporting 11.6 million people and playing a clear role in limiting job losses.

The UK had to start its furlough scheme from scratch when the pandemic hit. But schemes supporting temporary lay-offs or short-time work are common in most developed economies. Twenty-three countries in the OECD had short-time working schemes in place before the coronavirus pandemic, including most famously Germany, but also Japan and many US states. These schemes have many benefits, including protecting jobs, income and skills, preventing the widening of inequalities as those most affected by structural discrimination lose their jobs first, saving employers on recruitment costs, and helping to stabilise the economy by supporting consumer spending.

A permanent scheme with predictable criteria for access would help ensure these benefits were realised in any future restrictions, lowering the cost of restrictions to both workers and businesses. Evidence from across Europe suggests that short-time working schemes are cost effective. Research for the European Commission concluded that: “Expenditure for STW schemes has not been a significant financial burden in the past, except in crisis years in countries where short-time work is heavily used. Moreover, expenditure for these measures is not additional but an alternative to payments for unemployment benefits that would have otherwise been incurred.”[1] The aim of a permanent short-time working scheme would not be to embed its use for long periods, but to provide a safety net for workers and employers when health (or other conditions) make restrictions essential.

Design considerations for a new short-time work scheme

The TUC believes that the eventual criteria for accessing a new permanent short-time work scheme should be defined by a tripartite panel bringing together unions, business and government, building on the success of social partnership in working in developing the furlough scheme. These criteria could include:

• Employers should be able to demonstrate a temporary reduction in demand -for example, a ten per cent reduction in turnover or working hours.

Most European schemes require companies to demonstrate a temporary reduction in demand, with some schemes setting a numerical threshold (a table setting out criteria across European schemes is in the TUC’s longer report on short time work schemes, published in August 2021).[2] Companies could be asked to submit an application setting out their evidence for the reduction in demand, which could be later be confirmed against tax receipts (in much the same way that individuals file self-assessment tax returns, which they can later correct).

In order to demonstrate that reductions in demand are temporary, some schemes (in Austria, the Czech republic, Hungary, Latvia, Lithuania, Slovakia, Slovenia and Sweden) required employers to demonstrate that they were not in a situation of insolvency or bankruptcy or that they had met all their social insurance and tax obligations or both.

One way of assessing viability could be to require employers to make a continuing contribution towards the cost of employment, but we recommend that this is capped at the level of national insurance and pension contributions to maximise the flexibility of the scheme. The scheme should also remain open to parents and carers who need to use it to deal with the impact of health measures on caring responsibilities.

The panel set up to design the scheme should also consider how better support could be provided to self-employed people, learning from the experience of the Self-Employment Income Support Scheme.

• Firms seeking to access a short-time working scheme should show that they have come to an agreement with their workers, either through a recognised union or through consultation mechanisms.

Most short time work schemes across Europe have a requirement to negotiate the scheme with employees, with, for example, firms in Germany required to show that they have agreed the use and duration of the scheme with Works Councils. Firms should be required to do the same thing in the UK – coming to agreement with a recognised trade union, or through formal collective consultation with their staff, using similar processes to those required when firms are making multiple redundancies. 

This requirement provides a valuable safeguard against misuse of the scheme by employers. As use of the scheme will normally involve some loss of income by workers, they are unlikely to agree to it unless there is no other alternative.

• The scheme should ensure full flexibility in working hours

The flexibility embedded in the furlough scheme has enabled companies to bring workers back gradually, to adapt their working conditions, and enable work sharing. This flexibility should be embedded in the design of any new scheme, allowing workers to work any proportion of their normal working hours, including zero.

• Workers should continue to receive at least 80 per cent of their wages for any time on the scheme, with a guarantee that no-one will fall below the minimum wage for their normal working hours

Workers should continue to receive at least 80 per cent of their wages for hours during which they are accessing the scheme, with a cap on the maximum amount that can be paid to limit the support to high earners.

However, the flaw in the current scheme that allows workers to fall below the minimum wage for their normal working hours should be fixed, with all workers guaranteed that their wages will not fall below the minimum wage for the hours they normally work.

• Any worker working less than a specified proportion of their normal working hours must be offered funded training.

A missed opportunity within the furlough scheme was that workers did not have the chance to use non-working time to improve their skills. A permanent scheme, particularly one designed to help deal with periods of industrial change, should invest significantly more in training.

One option would be for employers who have furloughed workers who are working less than a proportion of their normal working hours to be required to offer workers independent advice on the training and development that will futureproof their skills, and to help facilitate participation in identified training. We suggest that this criteria is drawn widely to enable as many workers to participate in training as possible. Additionally, the government could meet the national insurance and pensions costs of firms that provide appropriate training to furloughed staff.

Access to other free retraining courses that will support progression and job prospects - such as level 2 qualifications and ICT/digital courses – should also be available at no cost for furloughed workers. And the government should consider how workers on furlough could be supported to take up higher level qualifications in sectors identified as expanding.

• There should be time limits on the use of the scheme, with extension possible in limited circumstances

To encourage businesses to only use the scheme in exceptional circumstances, it might be sensible to place a time limit on any single use of the scheme. We suggest that this could be set at an initial six-month period with extension possible in exceptional circumstances – such as the covid crisis itself. This should allow firms facing a shortfall in demand, or needing a period to transition to new ways of doing business, to hold onto valuable staff.

• Firms accessing the scheme should be required to set out a plan for fair pay and decent jobs

Access to a short-time working scheme should be used as an opportunity for firms to get back on their feet – and to rethink how they operate. This should include a plan to offer fair pay and decent jobs to their staff – agreed with unions, and respecting the terms of any collective agreement already in place.

At a minimum, firms wishing to access the scheme could be asked to set out within three months a plan agreed with unions or staff to:

• Ensure that no staff within the company are paid less than the living wage
• Reduce pay ratios within the company to a maximum of 20:1
• Eliminate the use of zero hours and insecure contracts within their business; and
• Allow trade unions access to their workplace where there is no collective agreement in place.

These conditions should cover all workers directly or indirectly employed by the business, including any outsourced, agency, or contracted workers.

• Firms accessing the scheme should commit to paying their corporation tax in the UK, and not pay out dividends while using the scheme.

A short-time work scheme should be designed to protect jobs when businesses have no other option, not to protect company profits. Firms using the scheme should not pay dividends while doing so, and must pay their fair share when they can, by committing to pay their corporation tax in the UK.

• The scheme should be designed to promote equality, and monitored on its success in doing so

The ability to access the furlough scheme for working parents and workers who need to ‘shield’ from the coronavirus because of a pre-existing health condition has been an important step to considering how short-time work schemes can help prevent structural inequalities from widening during times of crisis. Government should ensure that, in line with their public sector equality duty, they take account of equality as an integral part of drawing up a future scheme. This is best done through an equality impact assessment. Regular monitoring should also be carried out on the outcomes of the scheme for different groups.

Fixing sick pay

In contrast to the success of the furlough scheme, the failure to fix the sick pay system is a national disgrace that has held back our pandemic response.

When the scale of the pandemic became apparent in March 2020, the TUC called for three reforms.

• Day one provision of statutory sick pay, abolishing the three waiting days required to claim the benefit;
• Including an additional two million people within the sick pay scheme, by removing the ‘lower earnings limit’ that excludes those on low pay; and
• Raising the level of sick pay to the level of the real living wage.

To date, the government has only responded to the first of these, providing day one access to sick pay in cases of coronavirus in March 2020. Efforts to work safely throughout the pandemic will continue to be frustrated until the other two reforms are implemented.

Including an additional two million people in sick pay

The ‘lower earnings limit’ excludes those who do not earn more than £120 a week from access to statutory sick pay. TUC analysis shows that this means that around two million working people do not have access to any sick pay when asked to self-isolate – currently for a period of ten days. This particularly hits women, and those in insecure work.[3] In polling undertaken in May 2021 for the TUC, around half of those on insecure contracts said that they would receive no sick pay when off work.[4]

Self-isolation when infectious is a critical tool to prevent the spread of the virus. But research has consistently shown that a lack of financial support is a barrier to self-isolation. For example, research published in the British Medical Journal (BMJ) found that “Those with lowest household income were three times less likely to be able to work from home and less likely to be able to self-isolate”.[5]

Fixing this exclusion would be a straightforward step for government to take. In fact, government had consulted on removing the lower earnings limit in November 2019, before the pandemic hit.[6] The response to the consultation found strong support for this measure, stating that “A majority of respondents (75%) agreed that SSP should be extended to employees earning below the LEL. This measure was supported by small and large employer respondents alike. Respondents felt that by extending SSP to those earning below the LEL, employers would be better incentivised to reduce sickness absence for all of their employees.”[7] However, government decided to u-turn on its previous promise, stating, incomprehensibly, that “now is not the right time to introduce changes to the sick pay system.”

Instead, government have introduced the temporary self-isolation payment scheme. The scheme is intending to provide a £500 payment to workers on low incomes who have been required to self-isolate due to Covid-19. To be eligible, workers must be unable to work from home and will lose income due to self-isolating. This scheme is not a success. TUC research found only one-in-five workers (21 per cent) even know about the scheme. Awareness drops even further among groups who most need the support: low-paid workers (16 per cent), those in insecure work (18 per cent), and those who receive no sick pay (16 per cent). Even when they have heard of it, few workers qualify; freedom of information requests sent by the TUC in May 2021 found that 64 per cent of applicants to the scheme were being rejected.[8]

TUC commissioned analysis by the Fabian Society found the cost of removing the lower earnings limit would be around £150m a year.[9] This could either be met by employers, or by the government as part of an extension of the temporary rebate paid to smaller employers facing sick pay costs (this rebate was extended as part of a December 2021 package of support for businesses). There is no excuse for failing to put in place this vital protection for low paid workers.

Raising the rate of sick pay to the level of the real living wage

Even when people do access statutory sick pay, the rate is so low that it can push workers into hardship. At £96.35, the rate is now at its lowest level in real terms (that is, taking account of the cost of living), since March 2003, almost nineteen years ago. High inflation, and the government’s refusal to uplift the benefit rate, mean that even compared to the beginning of the pandemic in February 2020, sick pay is now worth £3 less a week.[10] Polling for the TUC found that two-fifths of workers say they would have to go into debt, or go into arrears on their bills, if their income dropped to the level of statutory sick pay (which was £95.85 when the polling was undertaken in 2020).[11]

The rate of sick pay in the UK also compares very poorly to that received by workers in other countries. Statutory sick pay in the UK is worth around 16 per cent of average weekly earnings, compared to an average payment in OECD countries of over 60 per cent.[12] And while some employers top up statutory sick pay with occupational pay, many do not. A BritainThinks survey, carried out on behalf of the TUC, found that almost a quarter (of workers receive only basic SSP if they are off work sick. This equates to around 6.4 million employees. The less someone earns, the less likely they are to receive full sick pay. While 35 per cent of those earning less than £15,000 per year receive full pay when sick, compared to 87 per cent of those earning over £50,000 per year.[13]

Most employers, as well as workers, support an increase in the rate of Statutory Sick Pay. A report published by the Chartered Institute of Personnel and Development (CIPD) in December 2021 found that “nearly two thirds (62%) of employers agree that the SSP rate is too low and should be increased”.[14]

Increasing the rate of statutory sick pay to the level of the real living wage would cost around £110 per employee per year, for those employers not already paying occupational sick pay.[15] Again, government could help meet those costs through retaining the sick pay rebate for small business. And this would be a small price to pay for ensuring that workers who need to self-isolate can do so without facing a choice between putting their colleagues at risk and not being able to pay their bills.

Boost Universal Credit

The UK safety net is failing as a result of years of deliberate attacks on the social security system, with around £34 billion of cuts made to social security since 2010.[16] Families facing rising energy bills this April have had their ability to cope dramatically reduced by these cuts – and the temporary £20 boost to Universal Credit from September this year: the Resolution Foundation estimate that “the number of households suffering from ‘fuel stress’ – spending at least 10 per cent of their family budgets on energy bills – is set to treble overnight to 6.3 million households when the new energy price cap comes into effect on April 1st”.[17]

Rather than temporary fixes, we need a real boost to social security. The TUC believes that Universal Credit is not fit for purpose, and should be scrapped and replaced. But families needing help now cannot wait – and government should immediately raise the level of Universal Credit to £270 a week, around 80 per cent of the level of the real Living Wage.  

Recommendations

• The government should bring together unions and business to start work on the design of a new permanent short-time working scheme.
• Government should ensure that all workers can access sick pay by immediately removing the lower earnings limit to access statutory sick pay.
• Government should raise the level of statutory sick pay to the level of the real Living Wage, (around £320 a week).
• Government must raise the rate of Universal Credit to 80 per cent of the level of the real living wage, around £270 a week.