The chancellor dramatically extended his furlough scheme last night, just hours before it was due to end, bowing to demands from business leaders for more financial support throughout the new four-week lockdown in England.
Rishi Sunak said the decision was necessary because of the return of “stay at home” restrictions to contain Covid-19. News of the new lockdown had sparked fury from bosses. “We will do whatever it takes as the situation evolves,” Sunak said.
Until last night, the chancellor had planned to replace furlough with the job support scheme (JSS), which was less generous — and had sparked warnings that it would not be enough to prevent a wave of job losses.
The new restrictions, which begin on Thursday, come as the Bank of England is expected to unleash a further £100bn of quantitative easing and to slash its forecasts for the economy, which had plunged into its deepest recession in history during the first lockdown.
Fears are mounting of double-dip recession. Stock markets tumbled last week as the new wave of lockdowns drew near: the Dow Jones Industrial index dropped 6.5%, while the FTSE 100 fell 4.8% to hit its lowest level in six months.
Paul Dales, chief UK economist at Capital Economics, said the economy should avoid the record-breaking 20% contraction in April, but could still dive by 5%. Unlike during the first lockdown, construction and manufacturing sites will stay open.
However, Boris Johnson said that non-essential retailers, along with bars and pubs, would have to close in England until December 2. Furlough will be extended for the period at the 80% of wages level set in March. But unlike the original scheme, employers will need to pay employment taxes and pension contributions.
Adam Marshall, director-general of the British Chambers of Commerce, said the extension of furlough would bring “some short-term relief to some firms”. But he added: “There is no getting around the fact that the new restrictions will be devastating for businesses that have done everything in their power to adapt and operate safely. This is not the end of the conversation on support.”
Jonathan Geldart, director-general of the Institute of Directors, said: “Reinstating furlough is absolutely the right decision, and should bring relief to many businesses.” But the IoD demanded more support for directors who feared breaching solvency rules. “These measures will put great strain on an already fragile business community,” Geldart added.
Kate Nicholls, chief executive of the lobby group UKHospitality, called for an urgent review of the new JSS when it resumed in December. “We need to ensure … jobs are protected long-term.”
The Financial Conduct Authority said mortgage holidays — due to end last night — would now be available for people who had not applied previously.