Rishi Sunak has announced the government will extend the furlough scheme until March, providing 80 per cent of employees’ wages for those unable to work because of companies being forced to close by coronavirus regulations.
The chancellor’s U-turn – estimated to cost over £6bn per month – came as England entered a second national lockdown amid a resurgence of the virus.
It follows months of the Treasury resisting pressure to prolong the scheme to prevent mass unemployment in the winter.
An income support grant for self-employed people, covering the period November to January, will also increase from the planned 55 per cent to 80 per cent of average profits up to £7,500.
But he added that the planned £1,000 job retention bonus for any furloughed worker kept in a job until February was being postponed to a later date.
The chancellor’s announcement came as the Bank of England revealed it will pump an additional £150bn into the economy through quantitative easing to shore it up during a second English lockdown.
According to calculations by the Resolution Foundation think tank, the extension of the furlough scheme, which was first introduced at the onset of the pandemic and pays workers up to a maximum of £2,500 per month, is estimated to cost around £6.2bn each month.
“The extra cost is huge, but necessary,” the organisation said, adding that 5.5 million employees could also be furloughed during November as the impact of draconian restrictions hit the economy.
The exact sum will be dependent on take-up, but it is understood the bill for furlough comes in at around £1bn a month for every 1 million participants.
At its peak, the job retention scheme helped 9.6 million workers during the first Covid wave in the spring, but the number had declined to 2 million by the end of October, when it was due to be wound up. Total costs already stand at over £41bn.
Mr Sunak had been planning to halt the scheme last weekend, and its extension – initially to the end of England’s four-week lockdown on 2 December and now to the end of March – came in response to widespread warnings of a tsunami of job losses as companies moved to less generous programmes.
Anyone laid off between 23 September and 30 October in anticipation of the end of furlough can now be re-employed and placed back on the scheme.
Mr Sunak told the House of Commons that his highest priority was “to protect jobs and livelihoods” and recognised that businesses and families wanted “certainty” over the months ahead.
He said: “The government’s intention is for the new health restrictions to remain only until the start of December. But as we saw from the first lockdown, the economic effects are much longer-lasting for businesses and areas than the duration of any restrictions.
“And, as the Bank of England has said this morning, the economic recovery has slowed and the economic risks are skewed to the downside.
“Given this significant uncertainty, a worsening economic backdrop, and the need to get people and businesses security through the winter, I believe it is right to go further.
“So we can announce today that the furlough scheme will not be extended for one month, it will be extended until the end of March.
“The government will continue to help pay people’s wages, up to 80 per cent of the normal amount. All employers will have to pay for hours not worked is the cost of employer NICs [national insurance] and pension contributions.”
The support will be UK-wide, and a review in January will decide whether to increase employers’ contributions, said Mr Sunak.
Mr Sunak’s opposite number Anneliese Dodds, however, urged him to apologise to workers already made redundant before the eleventh-hour changes to the scheme and criticised the government’s delay in implementing restrictions recommended by the Scientific Advisory Group for Emergencies that had “cost lives and livelihoods”.
Referring to ministers’ previous refusal to extend the furlough scheme, she asked: “How many jobs could have been saved if this government had recognised reality and let businesses plan for the future?
“Will the chancellor apologise to those who have already been made redundant because of this last-minute approach?”
She added: “Businesses and workers have been pleading for certainty from this government, but the chancellor keeps ignoring them until the last possible moment after jobs have been lost and businesses have gone bust.
“And now further changes: the chancellor’s fourth version of his winter economy plan in just six weeks. The chancellor can change his mind at the last minute, but businesses can’t.
“We need a chancellor who is in front of the problems we face, not one who is always a step behind.”
The Trades Union Congress general secretary Frances O’Grady described the move as a “positive step” but insisted there was still gaps in the government’s support package.
“It’s not right to ask millions of low-paid workers on furlough to survive on less than the minimum wage. The chancellor must fix the scheme so their pay is topped up to 100 per cent,” she said. “We also need an urgent boost to both sick pay and universal credit. No one should be plunged into financial hardship if they have to self-isolate or if they lose their job.”
Torsten Bell, the chief executive of the Resolution Foundation, said: “The chancellor has now reset economic policy on a full lockdown mode, ahead of a difficult winter of lockdowns across the nations and regions of the UK.
“Support for firms and workers through a difficult winter is welcome, but it is hard to conclude that the messy process of returning economic policy to full lockdown mode via two-month, five-stage U-turn is anything other than deeply sub-optimal.
“The extension of the furlough scheme will help to protect millions of workers’ incomes in the tough months ahead. Sadly the same cannot be said for the self-employed. Too much of the £7.3bn scheme is being wasted on workers who didn’t need any help, while it offers nothing for close to 500,000 self-employed workers who have no work at all.”
While welcoming the chancellor’s announcement, the Institute for Public Policy Research (IPPR) think tank said many families across the country will still face significant financial hardships.
It added: “Some may even find themselves on the street as the ban on evictions has been lifted. To prevent this, the eviction ban should be immediately extended by six months.
“With unemployment on the rise, a targeted stimulus is also needed to get cash into families’ pockets during this challenging time. In particular, strengthening the social security system would make a life-changing difference to many of the poorest families. Sunak also needs to provide financial certainty for those who still face unemployment, despite this announcement.”
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