This article is more than 5 months old

This article is more than 5 months old

The government’s plan to subsidise the wages of workers affected by the Covid-19 lockdown of the economy could end up costing the Treasury £40bn for every three months the scheme is operating, a thinktank has said.

Following estimates from a leading employers’ organisation that at least a third of workers in the private sector were likely to be furloughed, the Resolution Foundation said it had upped its estimate of the bill the chancellor, Rishi Sunak, would face.

Quick guide UK government support for workers and businesses during the coronavirus crisis Show Hide Income subsidies Direct cash grants for self-employed people, worth 80% of average profits, up to £2,500 a month. There are similar wage subsidies for employees. Loan guarantees for business Government to back £330bn of loans to support businesses through a Bank of England scheme for big firms. There are loans of up to £5m with no interest for six months for smaller companies. Business rates Taxes levied on commercial premises will be abolished this year for all retailers, leisure outlets and hospitality sector firms. Cash grants Britain’s smallest 700,000 businesses eligible for cash grants of £10,000. Small retailers, leisure and hospitality firms can get bigger grants of £25,000. Benefits Government to increase value of universal credit and tax credits by £1,000 a year, as well as widening eligibility for these benefits. Sick pay Statutory sick pay to be made available from day one, rather than day four, of absence from work, although ministers have been criticised for not increasing the level of sick pay above £94.25 a week. Small firms can claim for state refunds on sick pay bills. Other Local authorities to get a £500m hardship fund to provide people with council tax payment relief. Mortgage and rental holidays available for up to three months.

Sunak has announced that the state will pay up to 80% of the wages of workers sent home by their companies because they have nothing to do during the period while large chunks of the economy are at a standstill.

In its latest weekly update the British Chambers of Commerce said 20% of companies that had responded to its survey were planning to furlough all their staff and two-thirds said they would furlough 75-100% of their workforce in the coming week.

Torsten Bell, the director of the Resolution Foundation, said: “Faced with an unprecedented economic crisis, the chancellor has set out a bold and ambitious job retention scheme to limit job losses, and help firms recover as quickly as possible once the pandemic is over.

“By subsidising up to 80% of workers’ wages, the scheme will also help millions of workers who would otherwise face catastrophic hits to their living standards.”

The Treasury is working on plans for how the UK might come out of the lockdown imposed in the middle of last month, but any strategy will involve a gradual opening up of the economy to minimise the impact of reinfection.

According to the Resolution Foundation’s estimates, the cost of the furlough scheme could amount to 2% of national income – gross domestic product – per quarter, and on current trends it appears likely that financial help for some sectors of the economy will last for at least six months.

Bell said: “The cost of the scheme depends on firms’ take-up and the length of time workers need to be furloughed for. But with recent surveys implying that at least a third of the private sector workforce could be paid through the scheme, it is likely to cost as much as £30bn to £40bn over three months.

“The economic and social cost of mass unemployment in the absence of such a scheme would be far, far greater.”