Rishi Sunak has cancelled this year’s Budget and will instead prioritise protecting millions of jobs in sectors hit by the latest Government guidance on Covid-19.
The Treasury said the Chancellor would outline his plans to extend and replace financial support during an appearance in Parliament on Thursday.
His move comes after increasing pressure from business groups, MPs and unions to extend the furlough scheme as stricter restrictions are introduced.
Number 11 said work on the scheme, first revealed by the Chancellor on Twitter, had been taking place in parallel with Budget preparations and the focus has been on jobs to avoid the expected three million unemployed.
The Treasury said: “We will always be honest with people about the difficult trade-offs that are involved here.
“Not between health and the economy, but between keeping people in jobs and helping them find new ones. And between help in the here and now and rebuilding in the future. That’s what people deserve.”
The Chancellor initially announced his move via Twitter, with a graphic titled “Winter Economy Plan”.
No further details were provided and it came as the Government confirmed more than 6,000 new coronavirus cases by 9am on Wednesday – the highest daily number since May 1.
A source close to the Treasury said: “No-one wanted to be in this situation but we need to respond to it.
“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.”
The move followed comments by Prime Minister Boris Johnson about a “creative and imaginative” action plan to protect jobs, with unions and business leaders pointing to schemes used in other European countries.
Bank of England governor Andrew Bailey said on Tuesday it was time to “stop and rethink” the furlough scheme in favour of a targeted approach.
The Trades Union Congress (TUC), which outlined its furlough replacement proposal last month, said the Government must “fast-track a new plan” to protect jobs.
The mooted plans would reportedly see the Government and firms share the cost of topping up wages for employees only able to work part-time due to the pandemic.
Ministers are desperate to avoid a second lockdown, with the associated economic damage, and early indicators suggesting the recovery has slowed.
One option reportedly being considered to replace the furlough scheme is Germany’s Kurzarbeit, or shorter work-time policy, under which firms can cut working hours in economic downturns with the state replacing part of their lost income.
Another proposal put forward by the CBI business group would see subsidies for firms that can offer staff at last 50% of their normal hours, with the cost for non-working hours shared equally by the company, the Treasury and the employee.
At Prime Minister’s Questions, Mr Johnson was repeatedly challenged about the looming prospect of support being withdrawn from firms and workers despite the prospect of the latest restrictions being in place for six months.
The furlough scheme has cost the Government £39.3 billion to date, with £3.9 billion between August 16 and September 20 alone, according to the latest figures.
“What we will do is continue to put our arms around the people of this country going through a very tough time and come up with the appropriate creative and imaginative schemes to keep them in work and keep the economy moving,” he said.
Labour leader Sir Keir Starmer asked “when is the Prime Minister finally going to act” in the face of calls from Mr Bailey, the CBI and trade unions to continue some form of support after furlough ends.
Mr Johnson said: “These are indeed tough times and I have no doubt that many businesses, many employees are feeling a great deal of anxiety and uncertainty and we will do our level best to protect them throughout this period.”
The Prime Minister hopes that the measures announced for England on Tuesday – including a call for office staff to work from home, a 10pm curfew for pubs and restaurants and the wider use of face coverings – will avoid the need for tougher interventions such as a second lockdown.
In Scotland, First Minister Nicola Sturgeon went further, imposing a ban on household visits.
She has also written to the Prime Minister – prior to the Chancellor’s tweet – calling for more powers or at least for an extension to the furlough scheme.
Ms Sturgeon said: “We mustn’t be hamstrung in essential public health decisions by the lack of necessary economic mitigations.”
Meanwhile, the Government said that as of 9am on Wednesday, there had been a further 6,178 lab-confirmed cases of coronavirus in the UK, taking the overall number of cases confirmed to 409,729.
It also said a further 37 people had died within 28 days of testing positive for Covid-19 as of Wednesday. This brings the UK total to 41,862.
Separate figures published by the UK’s statistics agencies show there have now been 57,500 deaths registered in the UK where Covid-19 was mentioned on the death certificate.