The chancellor’s extension of the furlough scheme until March will cost around £6.2bn per month, the Resolution Foundation think tank has said.
Sunak today announced a major U-turn, saying he would extend the scheme until the end of March rather than ending it this year.
The job retention scheme – commonly known as furlough – pays 80 per cent of the wages of workers’ who may otherwise be laid off.
It has supported more than 9m jobs since it was launched in April, costing the government £41.4bn.
The Bank of England today said it expected around 5.5m people to be on furlough in November, up from roughly 2m at the end of October.
Based on the Bank’s figure, the Resolution Foundation today said the extension is likely to cost “around £6.2bn a month”. That would take the total cost of the scheme to above £70bn by the end of March.
Paul Johnson, director of the Institute for Fiscal Studies think tank, said he was “taken aback” by Sunak’s move.
He tweeted: “No effort at targeting sectors/viable jobs for employees. Big contrast to position just days ago.”
Government borrows record amounts at low cost
The UK government has borrowed more than £200bn this year to support the economy, by far a peacetime record.
Yet its borrowing costs are at record lows, with the Bank of England hoovering up bonds and investors seeking the safety of government securities.
Sunak’s change of heart on furlough reflects the recent surge in coronavirus cases and the new England-wide lockdown to keep them under control.
The chancellor had previously said he did not want to “endlessly” keep people on furlough and instead wanted to focus on “viable” jobs.
The Resolution Foundation said the U-turn also reflects “the challenge of trying to match economic policy to different lockdown restrictions across the UK”.
Sunak also scrapped the job retention bonus, which would have paid firms £1,000 for each worker they took back from furlough. The Resolution Foundation said this would save as much as £8bn.