Furlough scheme should not be reduced to 60%, says ex-Bank of England boss who oversaw 2008 financial crisis recovery

‘Scheme ought to be linked to performance of the economy and not to particular calendar timetable’

The Brexit debate is stopping politicians from addressing the UK's economic problems, former Bank of England chief Mervyn King has warned (Getty)

The former governor of the Bank of England said the Treasury’s coronavirus furlough scheme should not have a time limit and instead should be “linked to the performance of the economy”.

Mervyn King told BBC Radio 4’s Today programme that if it was his decision, he would instead set specific “principles which would govern the ending of the furlough”, provided that the economy has recovered “to a very large extent”.

His comments come ahead of Chancellor Rishi Sunak’s update on the government’s job retention scheme on Tuesday, amid calls to extend it.

The scheme, where the government is paying 80 per cent of the wages of more than six million people who are temporarily on leave from their jobs, is due to end in June.

Mr Sunak has previously warned the scheme was not “sustainable” at its current rate. Prime Minister Boris Johnson on Sunday encouraged people in England to return to work if it is safe to do so.

The former Bank of England governor warned the chancellor against reducing the scheme to 60 per cent of earnings, as reports suggest the chancellor is considering, until the economy has recovered further.

Lord King said: “Indeed, keep it at 80 per cent. I don’t think it makes sense to regard this as the major cost of the Covid-19 crisis in economic terms.”

When asked if he would extend the scheme beyond September, Lord King said: “I’d set out some principles which would govern the ending of the furlough that ought to be when the economy gets back to much closer to normal. We just don’t know where we’ll be in September.”

Mr King said it was “the right thing to do” not to put a time limit on the furlough scheme, and added it would be “consistent with the government strategy of relaxing the restrictions only if we see evidence of the rate of infections falling”.

“We can’t put a time frame on that and therefore the furlough scheme ought to be linked to the performance of the economy and not to a particular calendar timetable,” he said.