British finance minister Rishi Sunak ramped up his 200 billion-pound ($262 billion) economic rescue programme once again on Thursday in a coordinated move with the Bank of England, which increased its already-huge purchases of government debt.
As England went into a new month-long coronavirus lockdown, Sunak announced the latest in a string of expansions of massive government support in an attempt to slow a surge in unemployment.
He extended the government’s costly coronavirus furlough scheme, which provides 80% of the pay of temporarily laid-off workers, until the end of March, and said he would provide billions of pounds of other jobs support.
“It’s clear the economic effects are much longer lasting for businesses than the duration of any restrictions, which is why we have decided to go further with our support,” Sunak told parliament.
Earlier on Thursday, the Bank of England said it was increasing the size of its government bond purchases by a further 150 billion pounds ($196 billion), helping the government to fund the surge in public spending.
As well as the furlough extension, Sunak increased support for self-employed people and raised guaranteed funding for Scotland, Wales and Northern Ireland by 2 billion pounds to 16 billion pounds.
Britain is heading for a budget deficit of around 20% of gross domestic product in the current financial year, double its level after the global financial crisis and its highest since World War Two.
Despite the spending, the country faces the worst peak-to-trough contraction of any Group of 20 economy, Moody’s (NYSE:MCO) said on Oct. 16 when it cut Britain’s credit rating.
The opposition Labour Party accused Sunak of being behind the curve by announcing four versions of his economy plan in six weeks, raising the risk of workers losing their jobs.
“We need a chancellor who’s in front of the problems we face, not one who’s always a step behind,” Labour’s would-be finance minister Anneliese Dodds said in parliament.
“The chancellor can change his mind at the last minute, Mr Speaker, but businesses, can’t.”
The furlough policy will be reviewed in January to see whether employers are able to increase their contributions from their current level of 5% of total employment costs, or about 70 pounds per employee per month.
Sunak’s previous plans to scale back Britain’s job support were blown off course last weekend when Prime Minister Boris Johnson announced the new month-long lockdown for many people and businesses in England.
Sunak said on Saturday he was extending the furlough scheme for a month until early December to soften the hit of the new lockdown, only to stretch it out again until the end of March on Thursday.
The scheme supported nearly 9 million jobs at one point and had been forecast to cost around 52 billion pounds over its eight-month lifespan, before the latest extensions.
The finance ministry said evidence from the first lockdown showed that the economic effects were much longer lasting for businesses than the duration of restrictions.
The BoE said earlier on Thursday that it expected Britain’s unemployment rate would peak at nearly 8% in the second quarter of next year, much higher than its most recent reading of 4.5%.
Sunak is also under pressure from members of his own Conservative Party to show he will start to tackle the huge hole in the public finances.