Mr Sunak’s Budget will take place in the shadow of the pandemic, and his allies said his priority will be “jobs, jobs, jobs” © REUTERS

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Chancellor Rishi Sunak is drawing up Budget plans to try to avert a big rise in unemployment when the government’s Covid-19 emergency measures, including the furlough programme, are finally withdrawn.

Mr Sunak is looking to incentivise employers to keep staff in work in his Budget, which will focus on stopping the coronavirus pandemic creating a long tail of joblessness that will scar the economy.

The Budget due on March 3 will also provide the backdrop for a hugely contentious government decision on whether to scrap a £20 a week uplift in universal credit and working tax credits to help families through the pandemic. The temporary uplift took effect last April, and is due to end in March.

Boris Johnson hinted this week that he expected the £20 a week boost to universal credit — set to cost the Treasury about £6bn — to expire as planned.

He told MPs most people “would rather see a focus on jobs and a growth in wages, than focusing on welfare”, but Labour will raise the issue in a House of Commons debate on Monday.

With unemployment expected to peak later this year, Mr Sunak’s Budget will take place in the shadow of the pandemic, and his allies said his priority will be “jobs, jobs, jobs”.

7% is the unemployment rate economists expect by the end of the year

Treasury officials are drawing up plans to incentivise companies to take on staff, especially once the government’s job retention scheme — currently scheduled to end in April — is wound down.

Mr Sunak last year proposed a £1,000 “job retention bonus” for each worker that companies brought back from the furlough programme, but he subsequently dropped the incentive when he extended the job retention scheme.

The chancellor has since vowed to “redeploy a retention incentive at the appropriate time”, although Treasury officials said no final decisions have been taken on exactly what form it should take.

Some business groups, including the Institute of Directors, have lobbied for a cut to employers’ national insurance contributions, which critics have dubbed a “jobs tax”.

“Given that jobs have been our priority through this crisis, you should expect that the Budget will outline the next stages of our plan for jobs,” said a Treasury spokesman. “That has been our priority throughout the past year and it will be the priority for the year to come.”

Unemployment has risen from 4 per cent a year ago to 4.9 per cent in the three months to the end of October, but would have been far higher if the furlough programme had ceased.

With the job retention scheme running until April, economists now expect unemployment to reach just under 7 per cent by the end of the year.

Ahead of the Budget, business groups are pushing the Treasury for extensions to many of the government’s existing support packages for companies, including business rates relief, plus delays to repayments of state-backed loan schemes. 

The Treasury is also considering proposals from trade bodies for vouchers that could be used by small companies to help fund training, as well as deal with costs stemming from Brexit.

The final shape of Mr Sunak’s Budget will not be decided until next month, as the chancellor weighs up progress in the Covid-19 vaccination programme and the likely duration of the economic emergency.

Treasury officials are said to be trying to find the right balance between “life support” measures for the immediate crisis, policies to help the economy “get out of hospital”, and measures for life after the pandemic.

A second Budget is expected in the autumn, where Mr Sunak may take steps to put the public finances on to a sustainable footing.

The 2020-21 deficit is expected to exceed £400bn because of the chancellor’s emergency spending to support companies and households and the dramatic fall in tax revenues during the coronavirus crisis.

Labour leader Keir Starmer will on Monday organise a Commons debate in which he will argue that the £20 a week uplift to universal credit should continue, with Manchester United footballer Marcus Rashford joining the campaign.

Mr Sunak has not taken a decision on whether to extend the £20 uplift, but a government amendment to Labour’s parliamentary motion about universal credit said that the move was a “temporary and emergency” measure.

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