Rishi Sunak has scrapped his plan for an autumn budget and will announce fresh measures to halt job losses and business failures on Thursday amid government fears that a second wave of Covid-19 threatens Britain with a double-dip recession.
The chancellor has decided that the long-term decisions that would have featured in the annual set-piece event must be shelved in order for the Treasury to be able to focus on avoiding a short-term economic crisis.
With signs that the summer spurt in growth has proved short lived, Sunak will use his statement to MPs to announce an extension of business loan schemes and a package of employment support to replace the government’s furlough scheme, which is due to end next month.
Setting the stage for a Commons update, the chancellor said he would announce the details of a “winter economy plan” that would “continue protecting jobs” as Britain enters a new phase of the pandemic.
It comes as pressure increases on the chancellor to act after Boris Johnson announced new restrictions on business and social life earlier this week.
“No one wanted to be in this situation but we need to respond to it,” a Treasury source said. “The chancellor has shown he has been creative in the past and we hope that people will trust us to continue in that vein. Giving people reassurance and businesses the help they need to get through this is uppermost in his mind.”
Against a backdrop of rising job losses and a worsening growth outlook, business groups, Labour and trade unions said Sunak urgently needed to step back from ending the furlough, or at least replace the jobs programme with a successor scheme.
The Labour leader, Keir Starmer, said the country needed a plan B for the economy and that he had offered to help Boris Johnson come up with one, adding: “It makes no sense to bring in new restrictions at the same time as phasing out support for jobs and businesses.”
In a televised response to the prime minister’s address to the nation, Starmer said: “That’s a huge gap. It’s a huge mistake. And it could lead to a wave of job losses this winter. We need a national effort to protect jobs and prevent a second lockdown … I’ve offered to work with the prime minister to do whatever we can to save lives and livelihoods.”
The Guardian revealed on Tuesday that one option being weighed by Sunak to replace the furlough scheme is a package of wage subsidies for employees put on short-time work of the sort already operating in Germany. Sunak, however, will say that his plans are custom-made to suit the UK’s current needs rather than a straight lift from another country.
Dropping the broadest possible hint that a successor scheme to furlough was in the final stages of development, Johnson told MPs on Wednesday that the government would “continue to put our arms around the people of this country”.
“We will go forward with further creative and imaginative schemes to keep our economy moving,” he said.
Alongside the flagship wage subsidy plan, another measure forming the backbone of Sunak’s winter plan for the economy is expected to be an extension in the Treasury’s Covid loan scheme for businesses.
Companies have borrowed more than £57bn so far through the programme, which was expected to close at the end of September. The furlough scheme has cost £39bn since it was launched on 20 April.
Whitehall sources said the decision to scrap the budget – which will put paid to any immediate thoughts of repairing the damage caused to the public finances by the pandemic – was taken because the public wanted to see the chancellor focus on the “here and now”.
Britain’s hospitality sector has reacted with alarm to the tougher rules for bars and restaurants, while city centre retailers fear a fresh blow from the advice to workers to do their jobs from home if possible.
Sunak’s decision means the autumn budget has been delayed for a second year, although the Office for Budget Responsibility will still publish updated forecasts for the economy and the public finances in November. By law, the OBR has to publish two forecasts a year.
Sources said it had been necessary to trigger contingency plans that the Treasury has been working on over the summer in the event that the economy needed additional support. After collapsing by 25% between February and April, the economy started to grow again in May and is on course to expand by at least 15% in the third quarter.
More recent indicators, however, have suggested the recovery has started to lose momentum and the chancellor is concerned that the new Covid-19 curbs will exacerbate an expected sharp increase in unemployment between now and the end of the year. Sunak will tell MPs tomorrow that his priority will be the same as it has been since the start of the crisis six months ago – jobs.
Although the government’s furlough scheme has meant the unemployment rate has risen only gently to 4.1% since the start of the pandemic, the Bank of England expects a much sharper increase to 7.5% by the end of the year. That forecast was made before this week’s new restrictions were announced.
Warning that the risks to the economy were building, Andrew Bailey, the Bank’s governor, said on Tuesday that the government needed to “stop and rethink” the end of furlough.
Sunak has previously said there will inevitably be job losses as a result of the pandemic and will tell MPs that the government has to be honest with the public about the trade-offs involved between keeping people in jobs and helping them find new ones, and between help now and rebuilding in the future.