Furlough payments for employees unable to work because of coronavirus restrictions are to be extended by five months to the end of September, as part of a Budget in which Rishi Sunak will set out billions more in support for business as the UK emerges from the pandemic.
Employees will continue to receive 80 per cent of their salary for hours not worked, but unions and industry warned that the chancellor is risking jobs by requiring employers to contribute 10 per cent towards pay in July and 20 per cent in August and September while the state covers the rest.
Meanwhile, more than 600,000 self-employed people excluded so far from the government’s support package will be able to claim direct cash grants, as the government’s self-employment income support scheme (SEISS) is extended to cover those who began working for themselves in 2019-20.
Follow Budget 2021 live: Rishi Sunak to unveil ultra-low deposit mortgages
Mr Sunak will say he is ready to do “whatever it takes” to help businesses and people through this “moment of crisis”, promising to use “the full measure of our fiscal firepower” through tax and spending decisions in the Budget to protect jobs and livelihoods. And Downing Street said the package would “unleash growth and support jobs”.
But the chancellor left no doubt that tax rises are also on the way to rebalance the UK’s public finances, which have plunged more than £2 trillion into the red after he pumped £280bn of borrowed cash into schemes like furlough, business rates relief, support grants and VAT breaks – and much of this spending is expected to be extended in Wednesday’s Budget.
Corporation tax is expected to be gradually eased up from 19 per cent to as much as 25 per cent, while a freeze on income tax thresholds could drag more workers into higher bands. And Labour has warned the chancellor could seek to rein in spending with a public sector pay freeze and the abolition of the £20-a-week uplift to universal credit.
Mr Sunak will tell MPs: “First, we will continue doing whatever it takes to support the British people and businesses through this moment of crisis.
“Second, once we are on the way to recovery, we will need to begin fixing the public finances – and I want to be honest today about our plans to do that.
“And, third, in today’s Budget we begin the work of building our future economy.”
Furlough had cost the Treasury a total of £46bn by December last year, as the state paid the wages of up to 11.2 million workers in an unprecedented programme. Extension to September will cost billions more, though the total paid out can be expected to fall if social and economic restrictions are lifted by 21 June as planned in Boris Johnson’s roadmap to recovery.
Labour said Mr Sunak could have made today’s announcement long ago, but had denied businesses certainty for months in order to be able to grab the limelight on Budget day, just eight weeks before furlough was due to expire at the end of April.
Bridget Phillipson, shadow chief secretary to the Treasury, said: “Businesses and workers have been pleading with the chancellor to give them certainty – but they have had to wait because he said it wouldn’t be appropriate until the Budget. Announcing it the night before shows the focus is on Rishi Sunak getting his moment in the sun rather than protecting jobs and livelihoods.”
Frances O’Grady, TUC general secretary, said extending furlough was “vital to protect jobs and businesses” and she urged the chancellor to promise it will last as long as needed to secure recovery. Mr Sunak must also deliver a major programme of job creation in the Budget, said Ms O’Grady.
And she warned: “Reducing support to employers in July, just as restrictions end, will risk jobs. The job retention scheme should be available until at least the end of the year. And without specific support, the hardest-hit sectors – like hospitality, retail, the creative industries, travel and aviation – will struggle to reopen fully.”
The UKHospitality trade body warned that extended furlough alone will not be enough to keep businesses going through the spring and summer
“It is now more important than ever that the chancellor delivers a wider package of support in his Budget statement,” said chief executive Kate Nicholls. “We must have an extension of the VAT cut and business rates holiday if we expect to see businesses survive and thrive after the crisis has passed.”
Mr Sunak’s plan made it all the more important that Mr Johnson sticks to his 21 June date for allowing venues to reopen fully, she said.
And she warned that requiring employers to contribute towards pay for unworked hours from July will “place unnecessary pressure on fragile businesses just as they are beginning to get back to their feet”.
“Businesses are burning through their cash reserves and many will have exhausted them before they have a chance to reopen,” she said. “Not all businesses are going to be out of the traps instantly. It will take time for them to reopen and they will be racking up costs in the meantime.”
Rain Newton-Smith, chief economist at the Confederation of British Industry, said it was “common sense” to extend furlough, which would “keep millions more in work and give businesses the chance to catch their breath as we carefully exit lockdown”.
And Mr Sunak said: “Our Covid support schemes have been a lifeline to millions, protecting jobs and incomes across the UK.
“There’s now light at the end of the tunnel with a roadmap for reopening, so it’s only right that we continue to help business and individuals through the challenging months ahead – and beyond.”
The chancellor will announce a fourth grant under the SEISS scheme, available to the self-employed from next month, worth 80 per cent of three months’ average trading profits up to £7,500 in total. And he will indicate that a fifth grant is to be offered later in the year.
Because the scheme can now draw on data from tax returns for the financial year 2019-20, support will be accessible to more than 600,000 people who had not taken on self-employed status by the end of 2018-19.
Mike Clancy, general secretary of the Prospect union, welcomed the move, but added: “While the chancellor has plugged one hole in his support package, he has left several others gaping wide open, meaning hundreds of thousands of self-employed and freelance workers are set to be denied the support they need to bridge the gap to the reopening of the economy.”
And Sonali Joshi of Excluded UK said: “Even with the further support that is expected with the inclusion of 2019-20 tax returns, the majority of those who’ve been shut out of meaningful support thus far will continue to be excluded.
“Those individuals excluded from support are not just the self-employed. They are also limited company directors, employees who were denied furlough for a variety of reasons, zero-hour contract workers and PAYE freelancers.”
Also expected in Mr Sunak’s second Budget as chancellor are:
- Nearly £410m for the culture sector.
- £300m for a sports recovery package.
- A £150m fund will help local communities save assets like pubs.
- £520m will support small UK businesses with training and software.
- £2.8m will be given to a joint UK and Ireland bid to host the 2030 football World Cup.
- The fuel duty freeze is set to continue.
William Hague – a close ally to Mr Sunak, who inherited the former Tory leader’s Richmond seat – set the scene for tax rises, declaring: “It pains me to say, after spending much of my life arguing for lower taxes, that we have reached the point where at least some business and personal taxes have to go up.”
And former chancellor Philip Hammond said public spending cuts will also be needed, telling Times Radio: “We have got to get a balance right between restraining public spending and increasing taxes and we’re going to have to do both.”