Rishi Sunak has announced the government will extend furlough until the end of March as the second coronavirus wave and renewed lockdown measures threaten to drive up unemployment.
In a major climbdown for the government after multiple changes to its economic support packages in recent weeks, the chancellor said the Treasury would continue to pay 80% of workers’ wages. Support for the self-employed will also be increased for November to January to a similar level.
Sunak said it was increasingly clear that the economic effects of the pandemic would be much longer lasting for businesses than just the duration of the second lockdown and this warranted the multibillion pound increase in wage support.
“Extending furlough and increasing our support for the self-employed will protect millions of jobs and give people and businesses the certainty they need over what will be a difficult winter,” Sunak said.
The extension will, however, fuel speculation that tougher restrictions on business and social life will continue for much longer than acknowledged by the government, raising the prospect of significant disruption for the UK economy well into the new year. Ministers had previously been keen to bring furlough to an end, arguing that looser controls removed the need for such high levels of support.
Boris Johnson had announced on Saturday that furlough would be extended until 2 December to coincide with a second national lockdown in England, having previously resisted calls for tougher restrictions, including from Labour.
But within a matter of days, the Treasury said evidence from the first lockdown showed the economic damage was much longer lasting for businesses than the duration of the restrictions.
Thursday’s announcement follows mounting pressure from business groups, unions and politicians from across the political divide who had called for additional economic support during the second wave of the pandemic.
It also comes after the Bank of England announced a fresh £150bn stimulus package earlier on Thursday, in a coordinated push between No 11 Downing Street and Threadneedle Street to safeguard jobs and growth through a difficult winter ahead.
Sunak said the furlough extension meant Treasury plans to pay a £1,000 job retention bonus to companies for every furloughed staff member they kept on until the end of January would now be scrapped. The chancellor said the government would “redeploy a retention incentive” later next year after the end of furlough.
As many as 8.9 million jobs were furloughed at the peak of the first lockdown as more than 1m companies sought financial support during the biggest collapse in economic activity on record. Costing more than £40bn so far, the number of people on furlough has steadily fallen in recent months as the economy gradually reopened. But as many as 2m jobs, mainly in the hardest hit sectors of the economy where tough controls have remained in place – such as hospitality and leisure – were still on furlough in mid-October.
The Treasury estimates the cost of furlough to be about £1bn a month for 1 million people on the scheme. It did not publish a figure on the expected total cost of the scheme being extended to the ned of March.
The Bank of England estimated as many as 5.5 million people could be placed on the scheme during the November extension as the second lockdown comes into effect in England. Although the Bank credited the extension with preventing a sharper rise in job losses this winter, critics have warned that the government’s repeated tweaks to the job support package led to widespread redundancies this autumn.
As the government gradually wound down the furlough scheme before its scheduled close at the end of October, redundancies rose at the fastest rate on record. Anneliese Dodds, the shadow chancellor, said: “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.”
Sunak was also criticised for failing to provide additional support for millions of workers who have either lost their jobs or were never been eligible for furlough. Mike Clancy, the general secretary of the Prospect union, said: “The exclusion of 3 million self-employed and freelance workers from any economic support is even more unjustifiable than it was back in March.
“People must not face a winter with no support due to arbitrary cutoffs that were conceived when we had no idea how long this crisis would last, the government urgently needs to review the rules and make sure that all workers are covered by these schemes.”