U.K. Finance Minister Rishi Sunak has announced a back-to-work bonus scheme for businesses bringing furloughed employees back to work, and a 50% restaurant discount for all citizens through the month of August.
In a de-facto "mini-budget" unveiled Wednesday, Sunak told the House of Commons that the jobs retention scheme, which has subsidized wages for 9.3 million furloughed workers, will be tapered down to end in October. Businesses will receive £1,000 ($1254.55) bonuses per furloughed worker retained through January earning at least £520 per month.
Ahead of Wednesday's update, economists had warned that ending the furlough scheme in October would give rise to a much-feared unemployment crisis. However, Sunak claimed the scheme "can't and shouldn't go on forever" and labeled calls for a further extension to the furlough scheme "irresponsible."
"We have to be honest. Leaving the furlough scheme open forever gives people false hope that it will always be possible to return to the jobs they had before, and the longer people are on furlough, the more likely it is their skills could fade and they will find it harder to get new opportunities," Sunak argued.
Mike Bell, global market strategist at JPMorgan Asset Management, said that while the economy will benefit from today's proposals, they would not be enough to offset the hit from the winding down of the furlough scheme.
"Removing the furlough scheme before activity has recovered is like building three quarters of a bridge and not finishing it because it is becoming expensive," Bell said in reaction to the budget.
"Prematurely winding down the scheme risks having merely delayed job losses for millions of people, particularly in the worst affected sectors such as hospitality and retail."
Sunak also unveiled the unprecedented move of a 50% discount for citizens to eat out from Monday to Wednesday through the month of August, in a bid to get the hospitality industry back up and running following months of lockdowns.
The "eat out to help out" discount will max out at £10 per person and businesses will be able to claim it back from the government.
VAT (a value-added sales tax) for the hospitality and tourism sectors was also cut from 20% to 5% until January, costing the Treasury £4 billion.
The Treasury had revealed Tuesday night that Sunak would announce a £2 billion "kickstart scheme" aimed at subsidizing six-month work placements for people aged 16-24 who are at risk of long-term unemployment, along with a £111 million investment to triple the scale of traineeships in 2020-21. The move came as part of what the government terms a "three-point jobs plan."
Sunak also announced a temporary holiday from the property tax known as stamp duty for properties worth up to £500,000 in a bid to stimulate the property market.
Also included in the budget were an extra £1 billion to the Department for Work and Pensions to handle efforts to return employees to work, a £2 billion "green homes" plan and a further £1 billion to make public sector buildings more energy efficient.
In his March budget, Sunak announced a £30 billion spending package to tackle the immediate health and labor market impact of the pandemic and the nationwide lockdown. Since the beginning of the pandemic, the government has unleashed more than £160 billion of stimulus in an attempt to shore up the economy.
As of Wednesday morning, the U.K. had recorded at least 287,880 cases of Covid-19 and 44,476 deaths, according to data compiled by Johns Hopkins University.
The U.K. economy has contracted sharply since the beginning of the pandemic, with April's 20.4% fall in gross domestic product the steepest monthly decline on record. Meanwhile, borrowing surged to £103.7 billion in the April-May period, meaning public sector debt surpassed GDP for the first time since 1963.