Employers would be able to put workers into low-paid “limbo”, instead of making them redundant, under proposals made by business leaders today.

The CBI calls for a radical new way of helping businesses to weather the downturn with the “Alternative to Redundancy” (ATR) scheme. Workers would receive about £130 a week, paid equally by the Government and the employer. They would remain at home for up to six months, with a view to being called back to work when economic conditions pick up.

John Cridland, the CBI’s deputy director-general, said: “Businesses will be more able to cope with sharp drops in demand and prepare for recovery, while workers benefit from improved financial support and a door that is kept open for six months.”

The employers’ organisation also called for other steps, including a delay in the increase in national insurance payments scheduled for 2011, which it said would help to minimise the recession’s effect on the jobs market.

Unions immediately protested about details of the scheme that would let businesses short-circuit redundancy rules. The ATR plan would allow employers to make workers on the scheme redundant with only four weeks’ notice, in contrast with employment rules that require employers to hold a 90-day consultation if they want to make more than 100 people redundant. Workers on the ATR who accept another job offer would also be denied any redundancy package.

Brendan Barber, general secretary of the TUC, said: “There will be worries about whether employees who took up this option could end up losing redundancy rights and the big cut in income they will face, without any cushioning redundancy pay for the first six months.

“It is also better to keep people in work and training with their employer, even if on short-term working, rather than sitting at home, which is why unions and other employer groups are campaigning for the kind of wage subsidies that are now common in the rest of Europe.”

Mr Cridland said that wage subsidies would be too costly for Britain’s already overstretched public purse. Companies would implement the ATR only if employees agreed to it, he said. “This is not about businesses ducking their redundancy responsibility — in fact, if a scheme runs for six months and a redundancy is still made, then the business will end up paying more,” he said.

Workers aged over 25 on the ATR would receive at least £128.60 a week, with the Government paying £64.30 — equal to the jobseeker’s allowance — and employers paying the same, or more if they wished. Those under 25 would receive less because jobseeker’s allowance for under-25s is £50.95.

Unemployment, which has risen to 2.26 million, is expected to surge to more than three million between July and September next year. About 444,000 workers were made redundant in the three months to April alone.

The CBI said that there was a “window of opportunity” for the Government to try to limit the damage by including the ATR in legislation to help companies to retain skilled workers, whom they would need as the economy recovered. However, it admitted that it would be impossible to calculate how many jobs such a scheme would save.

Mr Cridland said that he was not claiming that the scheme would have a big impact on unemployment, but it could be “key to helping particular groups of workers in particular areas”.

The CBI, which has compiled a report on the jobs market with Siemens, the engineering group, also called for the Government to step up its efforts to combat youth unemployment. Mr Cridland said: “It is not healthy to let young people in deprived areas be out of education or training or employment.”

Explore Economics

• Pre-Budget Report 2008

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive