The head of HM Revenue and Customs has told Rishi Sunak he cannot certify his flagship £1,000 job retention scheme as value for money because of uncertainty about its cost and the number of jobs it will save.
The tax authority’s chief executive Jim Harra voiced his concerns in a letter to the chancellor on the eve of Wednesday’s emergency mini-budget in which the £9bn scheme was unveiled as the centrepiece of Mr Sunak’s bid to avoid a wave of redundancies when furlough arrangements cease on 31 October.
Meanwhile, Labour leader Sir Keir Starmer has warned the country cannot afford the “dead weight” of payments which may go to companies under the scheme for millions of jobs which are not under any threat.
Under the scheme, employers will receive £1,000 for every furloughed employee who remains in post until the end of January 2021 on a salary of at least £520 a month.
With some 9 million people benefiting from state-funded furlough payments of up to £2,500 a month during lockdown, the scheme could cost £9bn.
But Mr Sunak himself has admitted that it will not be possible to limit payments only to those who would otherwise have lost their jobs.
Experts have also warned that, while companies will happily pocket the cash for staff who they intended to retain anyway, many will not regard the £1,000 flat-rate payment as sufficient incentive to keep those who are no longer needed.
In his letter to the chancellor, Mr Harra requested a ministerial direction – a formal order to go ahead with a scheme which would otherwise breach his responsibilities as accounting officer to ensure that his department’s activities deliver value for money.
Mr Harra said while there was a “sound policy rationale” for the scheme, “the advice that we have both received highlights uncertainty around the value for money of this proposal”.
“It has proved difficult to establish a counterfactual for this scheme, which depends on the overall cost of the scheme and the number of extra jobs it would protect both of which are currently highly uncertain,” he said.
“That uncertainty also applies to the efficiency of the measure.”
Doubts over the effectiveness of the scheme were also raised by Paul Johnson, the director of the influential economic thinktank the Institute for Fiscal Studies.
“A lot, probably a majority, of the job retention bonus money will go in respect of jobs that would have been – indeed already have been – returned from furlough anyway,” said Mr Johnson.
“This money will go even in respect of jobs which were briefly furloughed, are already back at work and can expect to be still back at work in January, the employer still gets £1,000.”
Keir Starmer said that the chancellor should have targeted payments at those genuinely at risk of losing their jobs as furloughed is scaled back from the start of next month and then terminated definitively at the end of October.
Speaking during a visit to Harlow, the Labour leader said: “The job retention bonus is a bonus for all jobs – many of those jobs, many of the people would have been brought back in any event.
“Some are really at risk of losing their jobs, so we say it should have been targeted in the areas that most need it, not across the piece.
“The chancellor has admitted there is a dead weight in his package – we can’t afford dead weight, we need the money to go where it is absolutely needed most and that’s those jobs that won’t be retained if the government doesn’t support them.”
Mr Sunak accepted that payments would go to support jobs which were not under threat, but said that this was an inevitable consequence of the need to act swiftly to an unprecedented challenge.
“Throughout this crisis I’ve had decisions to make and whether to act in a broad way at scale and at speed or to act in a more targeted and nuanced way,” the chancellor told BBC Radio 4’s Today programme.
“In an ideal world, you’re absolutely right, you would minimise that dead weight and do everything in incredibly targeted fashion.
“The problem is the severity of what was happening to our economy, the scale of what was happening, and indeed the speed that it was happening at demanded a different response.”
He said that “without question there will be dead weight – and there has been dead weight in all of the interventions we have put in place”.
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