Rishi Sunak scrapped his autumn Budget as he scrambled to roll out new emergency schemes to prop up jobs and businesses as the economy heads towards a bleak Covid winter.
Mr Sunak abandoned his planned Budget, intended to set out a long-term recovery plan, in favour of immediate measures to avert a wave of business closures and unemployment over the next six months.
The chancellor’s plan, to be set out to MPs on Tuesday, is expected to include a new scheme to subsidise wages of people in part-time work, replacing the £39bn furlough programme that ends on October 31.
Mr Sunak is also expected to extend the life of four loan schemes, which have already backed £58bn in lending to companies through government guarantees. Both plans were revealed by the Financial Times this week.
The chancellor had hoped to use a planned autumn Budget to set out a long-term economic plan, showing a route out of the Covid-19 crisis and mapping out future tax rises to repair the public finances.
Instead, he remains in crisis mode, following Boris Johnson’s announcement of new coronavirus restrictions across England, which are expected to last six months. Confirmed cases jumped by a quarter on Wednesday to 6,178.
Those close to Mr Sunak said he fears that Mr Johnson’s measures — including the 10pm closure of pubs and restaurants — are likely to be followed by much more painful economic restrictions in the coming weeks.
“He won’t hesitate to come back with more help for the economy,” said one colleague. A Treasury official said: “Nobody wanted to be in this situation but we need to respond to it.”
Mr Johnson told MPs the government would “continue to put our arms around the people of this country going through a very tough time and come up with the appropriate creative and imaginative schemes to keep them in work and keep the economy moving”.
The centrepiece of Mr Sunak’s package is expected to be a wage-support scheme, where the government tops up the pay of people only able to work part-time, replacing the furlough scheme for people who cannot work.
The Treasury has been looking at schemes in France, Germany and Spain that help companies that cannot bring back employees on a full-time basis because of the economic downturn.
Government officials are examining whether the state can subsidise the wages of employees who can work at least 50 to 60 per cent of their normal hours. The Treasury declined to comment.
Mr Sunak wants to end the furlough scheme, which he believes has kept people in “suspended animation” in jobs that no longer exist. More than 3m people are still thought to be benefiting from the scheme, which cost almost £4bn in the last four weeks.
A wage subsidy of the kind proposed by the CBI employers’ federation would be much cheaper to run. A rough FT calculation suggested it might cost some £500m a month if 3m people were on it because the employer would pick up most of the wage bill.
Under the CBI proposal, the company would pick up the full wage bill for the hours worked by an employee. For non-working hours the bill would be shared, with a third paid by the company, a third by the Treasury and a third forgone by the employee.
The attraction for Mr Sunak of a CBI-style scheme is that it would keep people in the workplace and support jobs that are still viable, if only on a part-time basis.
Under that plan, companies could choose whether to participate in its proposed work subsidy scheme, or take the £1,000 “job-retention bonus” offered by the government to businesses that take back on to their payroll people currently furloughed.
The extension of government loan schemes will aim to keep credit flowing to businesses hit by the fallout from the virus, while companies could be given more time to pay VAT and other tax bills.
Latest coronavirus news
Follow FT’s live coverage and analysis of the global pandemic and the rapidly evolving economic crisis here.
The chancellor is also under pressure from Conservative MPs and the opposition to offer targeted support to sectors, including arts and sport, that are unable to open their doors to paying customers.
Mr Sunak’s allies said the chancellor had been preparing contingency plans over the summer in case the pandemic required additional measures. “The priority is one word: jobs,” a Treasury official said.
Officially the Treasury is still aiming to conduct a “multiyear” spending review this autumn — setting out departmental budgets for much of the rest of this parliament — but some government insiders believe Mr Sunak is likely to opt for a stopgap review covering just next year.
Latest coronavirus news
Follow FT’s live coverage and analysis of the global pandemic and the rapidly evolving economic crisis here.
