May 12, 2020, 9:48 a.m. EDT

U.K. government to keep paying wages of furloughed workers until end of October as jobs program extended

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By Callum Keown and Archie Mitchell

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U.K. Chancellor of the Exchequer Rishi Sunak has extended the government’s coronavirus job retention program until the end of October.

The U.K.’s job retention program, in which the government pays up to 80% of furloughed workers’ wages, has been extended until the end of October.

Chancellor of the Exchequer Rishi Sunak said the program has been a “world-leading economic intervention,” leading to 7.5 million jobs being furloughed rather than permanently lost.

Announced in March, the program currently sees the government pay 80% of the wages of workers facing unemployment and forced into temporary leave due to the pandemic — up to £2,500 a month.

Addressing Parliament, Sunak confirmed that the program would be extended from June to the end of October — with “greater flexibility” to support the transition back to work. The announcement helped the FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX +0.83%  rise 1% on Tuesday.

Read: Here’s how the U.K.’s return to work could look as businesses prepare to restart the economy

Employers will be asked to contribute toward the cost from August, when they will also be able to bring furloughed staff back to work part-time — more details on employers’ contributions will be unveiled by the end of May.

Sunak reassured workers that through combined government and employer support they would continue to be paid 80% of their salaries — despite reports that would be cut to 60% from July.

“This scheme has been a world-leading economic intervention, supporting livelihoods and protecting futures. 7.5 million jobs have been furloughed, jobs we could have lost if we had not acted. Nearly a million businesses support it, who could have closed shop for good,” Sunak said.

“As we reopen the economy we will need to support people back to work — we will do so in a measured way.”

Extending the program for a fifth month to August — in its current form — would increase the cost by £10 billion, bringing the total support provided by the program to around £60 billion, the Institute for Fiscal Studies deputy director Carl Emmerson said.

Read: Britain unveils ‘mortgage holiday’ and £350 billion package to support businesses

Business groups and trade unions welcomed the extension, which they said would save millions of jobs.

The Trades Union Congress general secretary Frances O’Grady said she was pleased ministers had listened to unions by maintaining the 80% level and extending to the autumn.

“This will be a big relief to millions. Changing the rules to allow part-time working is key to enabling a gradual and safe return to work. And maintaining the rate at 80% is a win for the pay packets of working families.”

The Institute of Directors policy director Edwin Morgan said the part-time aspect of the program would be crucial for businesses.

See also: U.K unveils 100% government-backed ‘bounce back loans’ to protect small businesses

“A part-time furlough provides a much-needed launch ramp so businesses can start to get back up to speed. A more flexible approach will allow firms to raise activity levels in tandem with demand, helping to avoid cash flow challenges,” he said.

Jeremy Thomson-Cook, chief economist at Equals, said the extension was a welcome move but also not something to be read “overly optimistically.”

“October is a long time from the original lockdown date. We look at it from a point of realism — businesses cannot flip a switch and return to full speed without ongoing support and for the worst affected sectors — such as the hospitality industry — we expect the scheme to be extended further in the future.”

Additional reporting by Archie Mitchell.

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Callum Keown is a Barron's Group reporter for the Europe, Middle East and Africa region. He writes for MarketWatch, Barron’s, Penta and Financial News.

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