Brown resists clamour to introduce wage subsidies

PM not convinced that European-style support for firms would save jobs

The Government has rejected growing calls for it to pay subsidies to companies to encourage them to put workers on short time or lay them off temporarily instead of sacking them.

A coalition of employers, trade unions and MPs is pressing for European-style "wage subsidies" costing £1.2bn a year to protect 600,000 jobs. Although they won the support of some ministers, they have failed to convince Gordon Brown.

Government sources said the Cabinet had decided that help for individual sectors – such as the car industry – is a better way of keeping people in jobs than a blanket scheme. Ministers fear that companies would take advantage of the payments by rushing to threaten job cuts, or using the grants to protect "uneconomic" jobs that would eventually have to be axed anyway.

"Gordon Brown believes the priority is to get [bank] lending flowing to firms and then offer more targeted help," one source said. "He believes there would be a deadweight cost in which money would go to firms that didn't really need it." The issue was rammed home yesterday when Toyota announced cuts in production and pay at its two UK factories, minutes before the Government held a special summit to discuss the automotive crisis.

Ministers say subsidies could return to the agenda if the Cabinet is convinced that Britain's skills base would be eroded by redundancies. Supporters warn that the fightback after the recession could be hampered if too many skilled jobs are lost. Backers include the Federation of Small Businesses, the Engineering Employers Federation and the Trades Union Congress. They proposed the payment of £3.3bn in wage subsidies to pay 600,000 workers 60 per cent of their previous wages for between three and six months, arguing that the actual cost would be reduced by savings of £1.2bn in unemployment benefit and £850m in extra tax revenue.

Ninety MPs, including 81 Labour members, have signed a Commons motion calling on the Government to look at all options to help manufacturers retain skilled workers, warning that they are being forced into other jobs as more firms bring in short-time working. Some 23 per cent of engineering firms have already introduced short-time and a further 19 per cent are considering the move.

Wage subsidies are operating in France, Germany, Italy and Spain. But ministers say their social insurance systems are different, with unemployment pay often worth about 90 per cent of previous wages – so the cost of making up the difference is much smaller.

The Welsh Assembly has brought in a ProAct scheme which gives a £2,000 wage subsidy for employees on short time – plus a £2,000 training subsidy for each worker to help them boost their productivity. A nationwide scheme operated in Britain in the 1970s, whereby firms thinking of cutting at least 10 jobs were given a £20-a-week subsidy for up to a year for each job saved.

Despite the rebuff by the Cabinet, bosses and unions intend to continue their campaign. Brendan Barber, the TUC general secretary, said: "Wage subsidy schemes... across Europe are preventing thousands of unnecessary job losses." John Wright, chairman of the Federation of Small Businesses, added: "We must... give viable small businesses the support they need to keep people in jobs."

The two organisations are also pressing ministers to suspend a rule that forces workers on reduced hours, or who are laid off temporarily, to be available for a new job after 13 weeks in order to claim benefits. They point out that some lay-offs and short-time working lasts longer than 13 weeks.

Economy drive: How car-makers have reacted to the recession

Toyota (Burnaston, Derby and Deeside)

Two-week shutdown, pay and hours cut by 10%.

Ford (Essex, Daventry, Merseyside, Bridgend, Southampton)

850 jobs lost, four-day week, production cuts.

Honda (Swindon)

Production of cars halted until June 2009.

Aston Martin (Gaydon)

600 jobs lost, three-day week instituted.

Jaguar Land-Rover (Solihull, Halewood)

1,050 jobs lost, production cuts, one-year pay freeze, four-day week.

Bentley (Crewe)

Three-day week, 220 jobs lost, seven-week closure from March.

LDV (Birmingham)

95 jobs lost, production suspended since December.

Nissan (Sunderland)

1,200 jobs lost, and some shifts have been stopped.

BMW Mini (Swindon, Cowley)

850 jobs lost, two-week shutdown planned for August.