Rishi Sunak has extended the furlough scheme for another month until the end of April amid mounting concerns about the impact of lockdown restrictions on the economy.
The chancellor announced that the scheme, which subsidises 80 per cent of people’s wages up to a maximum of £2,500 a month, would be extended until April 30.
The decision came as 4.2 million people in the south and southeast of England were put under Tier 3 restrictions, the highest level. It means that two thirds of the population, about 37 million people, are now living under Tier 3, which includes the closure of pubs and restaurants.
Downing Street refused to rule out a third lockdown after Christmas to bring the virus under control. Some cabinet ministers believe another lockdown is inevitable while others anticipate tougher restrictions in Tier 3 areas.
Mr Sunak said the government had decided to extend the furlough scheme to “give businesses certainty”. The government also scrapped a review of the scheme which was due to take place in mid-January amid concerns it could have led to mass redundancies.
The Office for Budget Responsibility said last month that it expected the scheme to have cost a total of £62.5 billion. The one-month extension is likely to cost an additional £5 billion.
The chancellor also confirmed that his budget will take place on March 3, and said he will use it to set out the next phase of his economic recovery plan.
Mr Sunak said: “Our package of support for businesses and workers continues to be one of the most generous and effective in the world, helping our economy to recover and protecting livelihoods across the country.
“We know the premium businesses place on certainty so it is right that we enable them to plan ahead regardless of the path the virus takes, which is why we’re providing certainty and clarity by extending this support, as well as implementing our plan for jobs.”
Under the scheme employers will only be required to pay the national insurance and pension contributions. The chancellor will also extend the government’s coronavirus emergency loan schemes, which have already cost £68 billion, to the end of March. They were due to close at the end of January.
The extensions of the furlough scheme and coronavirus loan schemes will also focus attention on Mr Sunak’s March budget. The chancellor was considering tax rises but Tory MPs and ministers are concerned that doing so could damage growth at a precarious time for the economy.
A government source said that any decision over tax rises was likely to depend on the Oxford/Astrazeneca vaccine gaining regulatory approval.
Anneliese Dodds, the shadow chancellor, said: “Once again the chancellor has waited until the last possible minute to act, leaving businesses in the dark with less than 24 hours before they have to issue redundancy notices. Rishi Sunak’s irresponsible, last-minute decision-making has left the UK with the worst recession of any major economy.”
Asked about a third lockdown, the prime minister’s spokesman said: “We’ve been clear of the rationale behind the tiered regional approach and that’s what we’ve set out for the time. That is designed to reduce the rate of transmission and reduce the R rate in areas of high prevalence. As we’ve said we will obviously keep the latest data and the latest trends under review.”
Torsten Bell, head of the Resolution Foundation, said Mr Sunak was right to extend the furlough and coronavirus loan schemes. “The decision that employer contributions will be limited to national insurance and pension contributions over this period is also a welcome recognition of the toll the crisis is taking on firms. However, there is a case for better targeting support on the hospitality and leisure sectors most affected by ongoing restrictions,” he said.
According to NHS figures hospitals had to tell ambulance crews to divert patients elsewhere 44 times last week, the highest number in four years according to The Guardian.
University College Hospital in London declared an “internal incident” on Tuesday, citing “insufficient capacity now for emergency and Covid patients, with patients waiting for admission”. Northampton general hospital has cancelled some planned operations as it treats 181 people with Covid-19, 50 per cent more than the 120 it had at the height of the first wave in April.