Rishi Sunak will set out next week how he intends to ‘wind down’ the government’s coronavirus furlough scheme amid fears within Whitehall that the nation is becoming ‘addicted’ to state help.
The Chancellor is widely expected to start to reduce the scale of the scheme from July after it emerged it has a current monthly cost of approximately £8 billion, covering more than six million workers.
Mr Sunak has said such a bill is ‘not sustainable’ in the long term and he is in the process of figuring out how best to reduce support.
Experts believe the final bill to taxpayers for the scheme could end up being more than £40 billion.
The Chancellor is adamant workers will not face a ‘cliff edge’ of financial help being totally removed.
It is thought he could therefore choose an approach which would see subsidies reduced for different sectors of the economy at different times as they reopen for business.
Rishi Sunak will reportedly announce next week plans to reduce the goverment’s furlough scheme from July
Downing Street this week revealed the monthly cost of furlough is £8 billion. The NHS has a monthly budget of approximately £11 billion
The furlough scheme allows employers to claim 80 per cent of a worker’s wages, up to a monthly cap of £2,500.
More than 800,000 firms have made applications to the initiative, covering some 6.3 million workers.
Analysis published yesterday showed more than 50 per cent of British adults are now receiving some form of money from the state.
There have been more than 1.8 million new claims for Universal Credit since the middle of March and if the unemployed, 5.4 million public sector workers and 12 million pensioners are taken into account, the state now helps over half of the UK’s 52 million adults.
There are growing fears within the government that if the furlough scheme remains in place for too long it could act as a disincentive to going back to work and result in a prolonged over-dependence on state help.
A senior Government source told The Times: ‘People are addicted to the scheme.
‘We’re not talking about a cliff edge but we have to get people back to work.’
The newspaper reported that Mr Sunak is weighing up the merits of a three stage approach to easing off the furlough scheme.
The first would see small shops and outdoor workplaces allowed to reopen with subsidies reduced when they do so.
The second would then see large shopping centres reopen their doors and the third would relate to pubs, restaurants, hotels and leisure centres.
The sections of the economy last to get back up and running would be able to access furlough support for the longest period of time as it is gradually wound down.
Paul Johnson, head of the Institute for Fiscal Studies, said the Chancellor will need to strike a careful balance between being too generous and too stingy.
He said: ‘If you remove it quickly you risk a wave of unnecessary redundancies.
‘If you are too generous then you risk a longer, deeper recession and a bigger hit to the public finances.’
The current version of the furlough scheme is due to last until the end of June.
Experts believe it could ultimately cost the taxpayer in excess of £40 billion.
It was claimed yesterday that the Chancellor could opt to cut the support from 80 per cent of wages to 60 per cent as part of the plan to get Britain back to work.
Another option would see furloughed staff allowed to go back to work but they would only receive a smaller state subsidy.
Currently furloughed workers are prohibited from performing their duties with the scheme designed to maintain a link between employers and employees.
Downing Street did not deny that wage support could be tapered.
The Prime Minister’s Official Spokesman said the Chancellor was ‘working on the most effective way to wind down the scheme to ease people back into work in a measured way’.
In an interview on Monday night Mr Sunak tried to reassure workers and businesses that they will not face a ‘cliff edge’ of subsidies being withdrawn immediately when lockdown measures are eased.
The number of UK adults now receiving money in some form from the state is now approximately 27 million out of a total adult population of 52 million
But amid signs of strains within government about the huge burden on the country’s finances, Mr Sunak pointed out that the furlough scheme could soon be costing the same as the NHS budget – an estimated £11 billion a month.
‘I’m working, as we speak, to figure out the most effective way to wind down the (furlough) scheme and to ease people back into work in a measured way,’ he told ITV.
‘As some scenarios have suggested, we are potentially spending as much on the furlough scheme as we do on the NHS, for example.
‘Clearly that is not a sustainable situation.’
Analysis in The Daily Telegraph suggested around 27million adults – around 53 per cent of the total – are now receiving some form of financial assistance from the Government.
The figure is made up of furloughed workers, people claiming benefits, pensioners and public sector workers.
Former Tory chancellor Lord Lamont of Lerwick told the Telegraph: ‘It is not practical and not affordable for the state to pay people not to work – ultimately the Government only has the money it gets from taxation from people who create the wealth.
‘It is not a sustainable position except in the short term. It illustrates the danger and precariousness of our situation.’