The government will cover two-thirds of workers’ wages at businesses forced to close during new coronavirus lockdowns, the chancellor has announced.
Coming as ministers scramble to contain the economic fallout from tough new lockdown measures planned for the north of England, Rishi Sunak said the government would subsidise pay by providing grants to companies forced to close their doors – likely to be led by pubs, bars and restaurants – due to fresh controls being put in place.
Under the expansion, firms whose premises are legally required to shut for some period over winter as part of local or national restrictions can receive grants to pay up to 67% of employees’ salaries.
It comes just two weeks after the chancellor announced a replacement for furlough – the job support scheme – in his winter economy plan. With just weeks left until the old furlough programme closes at the end of October, the expansion of the new job support scheme effectively replaces it under a new name with some differences.
Under the plan, the government will support eligible businesses by paying two-thirds of each employees’ salary, up to a maximum of £2,100 a month. This is a higher rate than the furlough scheme is running at currently. The scheme had been gradually winding down from 80% support and had reached 60%, up to a cap of £1,875 at the start of October.
It is also a higher level of taxpayer support than the job support scheme, which was designed to provide firms with public money to cover 22% of workers’ pay, covering staff in “viable” jobs who are working reduced hours.
Rishi Sunak said: “Throughout the crisis the driving force of our economic policy has not changed. I have always said that we will do whatever is necessary to protect jobs and livelihoods as the situation evolves.
“The expansion of the Job Support Scheme will provide a safety net for businesses across the UK who are required to temporarily close their doors, giving them the right support at the right time.”
The Treasury said businesses will only be eligible to claim the grant while they are subject to restrictions and employees must be off work for a minimum of seven consecutive days. The new scheme will run from 1 November and will be available for six months, with a review in January. The scheme will be UK wide.
The Treasury expects the cost of the new scheme alone to be hundreds of millions of pounds a month, putting the cost of the entire six-month package at several billion pounds.
Asked whether the measure isn’t just an extension of the furlough scheme, which Sunak was adamant must end, a Treasury official said: “The very clear difference is that this is targeted at firms that are required to close.”
The chancellor announced his winter economic plan a fortnight ago, without mentioning wage support for shuttered businesses; but the Treasury official insisted it had always been envisaged, if closures became more widespread. “It’s a component that we’re adding to the Job Support Package,” he said.
The shift in government policy comes as ministers prepare tougher new local restrictions for parts of the country where Covid-19 cases have dramatically increased in recent weeks. It also comes as official figures indicate more than one in 10 workers in Britain – almost 3 million people – were still furloughed in early September.
With weeks left until furlough ends, economists have warned unemployment could more than double to 4 million by the end of the year – with youth unemployment hitting 17%, the highest level since the 1980s.
The announcement of fresh support measures also comes as official figures showed Britain’s economic recovery from the Covid recession was already slowing before the launch of new restrictions this autumn.
Gross domestic product (GDP) rose by just 2.1% in August from the level in July, falling short of forecasts for a growth rate of 4.4%, despite a boom in consumer spending at hotels, pubs and restaurants fuelled by the government’s Eat out to help out scheme.
Analysts expect the UK economy to struggle for growth in the months ahead amid the second wave of coronavirus infections and as the government puts fresh restrictions on business and social life.