Rishi Sunak on Thursday ripped up his “winter economic plan” and extended his hugely expensive furlough scheme until March, in an abrupt policy change that will pay 80 per cent of wages for those unable to work.
The chancellor’s decision to prolong the scheme represents another costly U-turn for Boris Johnson’s government, which has been forced to rewrite its plans as it braces itself for a bleak Covid-19 winter.
Mr Sunak said the new package of economic support was co-ordinated with the Bank of England, which on Thursday voted to buy a further £150bn of government bonds to boost spending as the economy falters.
“Given the significant uncertainty, a worsening economic backdrop and the need to give people and businesses security through the winter, I believe it is right to go further,” Mr Sunak said.
Although Mr Johnson insisted the national lockdown in England would end on December 2 and that he hoped the country could look forward to “as normal a Christmas as possible”, Mr Sunak’s package is intended to provide support in the event further tough restrictions are needed.
The furlough scheme is the Treasury’s single most expensive intervention in the Covid-19 crisis and Mr Sunak said the policy would be reviewed in January to determine whether the government would adjust its support.
The exact cost of the four-month extension will depend on the number of people furloughed and the level of employers’ contributions after January, but it is likely to be about £5bn a month.
The extension of the furlough scheme is a recognition that businesses will face hardship throughout the winter, either because of government-mandated closure or harsh trading conditions.
The furlough scheme, launched at the start of the pandemic in March, is available to companies regardless of whether they are open or closed. It is intended to freeze the jobs of people unable to work during the crisis.
The chancellor’s move was strongly criticised by Paul Johnson, director of the Institute for Fiscal Studies, who said Mr Sunak was returning to a policy “dreamt up on the hoof in 24 hours” in March.
“Wasteful and badly targeted for self-employed,” he tweeted. “No effort at targeting sectors/viable jobs for employees. Big contrast to position just days ago.”
Mr Sunak’s package also includes an additional £2bn for devolved administrations in Scotland, Wales and Northern Ireland, to help cushion their economies if they pursue their own lockdowns.
The chancellor also announced more support for the self-employed, the second change to the scheme this week, to offer support of 80 per cent of average profits from November until January, up to £7,500 per month. The increased generosity of the scheme will cost £1.4bn a month.
Only six weeks ago Mr Sunak set out a “winter economic plan” that aimed to wind down government support; it replaced the furlough scheme with a job support scheme to subsidise the wages of people working part-time.
Downing Street pursued a regional “tier” system of lockdowns, negotiating bespoke support deals with local leaders. That approach and the winter plan have been overtaken by the worsening situation.
Mr Sunak insisted his willingness to adapt to changing circumstances was a strength, not a weakness, but he apologised for the fact that the government’s support package kept evolving.
Anneliese Dodds, shadow chancellor, said it was the fourth version of Mr Sunak’s “winter economic plan”, first announced on September 24. “We need a chancellor who is in front of events, not always a step behind.”
The announcement was welcomed by business. The CBI lobby group said the extension of the “tried and trusted” scheme would “give companies the certainty and stability they need to help safeguard thousands of jobs into March”. But it added that supply chains and specific sectors may need further support.
In another change, Mr Sunak said a “job retention bonus” of £1,000 per worker, intended to persuade people to bring people off the furlough scheme and back into employment, would be shelved in February.
Mr Sunak is now firmly in Labour’s sights, as the opposition party attempts to challenge the reputation of a chancellor who has been seen by MPs from across party lines to have had a “good crisis”.
The Scottish National party and Scottish Conservatives vied to take credit for forcing Mr Sunak to rethink his refusal to extend the furlough scheme.
Alison Thewliss, an SNP member of the UK parliament, said: “It is a democratic disgrace that Westminster was only willing to act when England faced lockdown.”
Nicola Sturgeon, Scotland’s first minister, who has repeatedly insisted payments must be available at the original 80 per cent if a renewed Scottish lockdown was required, said the delay in deciding to continue running the scheme meant there had been unnecessary company failures and job losses. “That is deeply regrettable,” she said.
But Scottish Conservative leader Douglas Ross, who since the weekend has called for an extension of the furlough scheme in Scotland, said Mr Sunak’s rethink and assurance of a further £1bn in coronavirus funding for Scotland had “blown the SNP’s grievances out of the water”.
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