Furlough scheme extended by chancellor but taxpayer support scaled back

The scheme – which pays 80% of a worker’s salary up to a £2,500 monthly cap – will remain unchanged until the end of July and then continue with employers expected to start footing some of the multi-billion pound bill.

Sunak told MPs that from August there will be greater flexibility in order to allow furloughed staff to begin returning to work.

‘Employers currently using the scheme will be able to bring furloughed employees back part-time,’ he said.

‘And we we will ask employers to start sharing with the government the cost of paying people’s salaries.’

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Staff would continue to receive the current level of support through a combination of state and employer contributions.

Mervyn King, the former governor of the Bank of England, had said the chancellor should keep the salary at 80% until the economy has recovered.

Lord King told BBC Radio 4’s Today programme: ‘Indeed, keep it at 80%.

‘I don’t think it makes sense to regard this as the major cost of the Covid-19 crisis in economic terms.

‘These payments under government schemes are transfers from taxpayers in general to businesses, it will lead to an increase in national debt (but) we can finance that over a long period, particularly given the very low level of long-term real interest rates.

‘The real cost of this shutdown is not measured by the impact on the public finances but by the lost incomes and outputs in the economy, a cost which is likely to end up as an order of magnitude (though no one can really know this) of several hundred billion pounds. That’s an enormous cost.’

He said the ‘economy ought to have recovered to a very large extent’ before Rishi Sunak considers ending the furlough scheme in a bid to avoid a wave of redundancies when the support is curtailed.

Torsten Bell, chief executive of the Resolution Foundation think tank and an early advocate of the scheme, said it should be phased out gradually.

‘Moving too quickly could spark a huge second surge in job losses at a time when unemployment already looks set to be at the highest level for a quarter of a century,’ he said.

‘This policy has made a huge difference in this crisis. It now needs careful and gradual change to ensure the benefits it has provided are secured rather than squandered.’