The Chancellor is full of surprises. His latest one, announced 8 July, is a postscript to the Government Furlough Scheme. This is the “job retention bonus" of £1,000.

As is normally the case with announcements relating to furlough, anyone looking for comprehensive details as to how this will work may be disappointed. The Furlough Scheme should have come with its own “watch this space” logo. In relation to the bonus, we have to wait until the end of July to get more details.

However the basics seem relatively straightforward.  To earn the bonus employers will have to retain previously furloughed staff for 3 months after 31 October (when the Furlough Scheme ends). The £1,000 payment can be claimed in February 2020.  

Ok, on second thoughts, maybe not that straightforward. 

Does this cover every employee who has been furloughed or just those who are furloughed when the Scheme ends?  I assume the former but let’s wait and see.

There is another pressing question. Will this achieve anything apart from creating an even bigger hole in the UK’s finances?

Unfortunately £1,000 is unlikely to be a particularly attractive incentive for many businesses facing real financial challenges.

To earn the bonus, employers will have to pay employees for 3 months after the Scheme ends. The minimum salary payments are £520 per month. For most employees the costs will be higher. Clearly it will cost a lot more than £1,000 to earn the bonus.

Admittedly, those made redundant with two or more years’ service will be entitled to a redundancy payment, and all dismissals carry risks. However the costs of redundancies are not themselves a reason to retain staff until January. Also, the risks can be militated against by following a sensible redundancy process.

Separately, and counter intuitively, the current Furlough Scheme contains incentives for employers to make staff redundant by 31 October. This is because employees dismissed by reason of redundancy can be required to serve their notice, and also take all accrued annual leave, while remaining on furlough.  Allowing employers to recover the furlough pay element of these costs is a potential significant saving. It may well be worth a lot more than £1,000.

Given this, I fear that in the vast majority of cases the job retention bonus will be paid for employees who would have been retained irrespective of this incentive.