Coronavirus pandemic

Britain to pay up to 80% of workers' wages to limit firing

Extra $12b for welfare system planned; govt to sell debts to fund package amid shutdown

A worker walks past a boarded up pizza bar in Soho in London, Britain, on March 21, 2020.
A worker walks past a boarded up pizza bar in Soho in London, Britain, on March 21, 2020.PHOTO: EPA-EFE

LONDON • Britain's government will pay a massive share of private sector wage bills to discourage bosses from firing staff as it resorts to wartime levels of borrowing to prop up the economy during its coronavirus shutdown.

"For the first time in our history the government is going to step in and help to pay people's wages," Finance Minister Rishi Sunak said on Friday.

There was no limit on the size of the plan, which the government will fund by selling more debts.

Mr Sunak also allowed businesses to hold on to £30 billion (S$51 billion) of value-added tax, which they would normally pass on to the tax authorities.

"Combined with our previous announcements on public services and business support, our planned economic response will be one of the most comprehensive in the world," he told reporters.

Prime Minister Boris Johnson ordered the closure of pubs, restaurants, gyms and other businesses from Friday to slow the spread of the virus.

The pound weakened by around a cent against the United States dollar and the euro on Friday as Mr Johnson announced the shutdown and Mr Sunak set out measures to mitigate its impact.

The centrepiece of Britain's coronavirus crisis plan is a new grant covering 80 per cent of workers' salaries - up to a maximum of £2,500 a month each - if firms kept them on.

Mr Sunak said the wages support system would be up and running by the end of April, run for at least three months and be backdated to March 1.

Other measures include an extra £7 billion (S$11.8 billion) for the welfare system. "The truth is we are already seeing job losses and there may be more to come," Mr Sunak said. "I cannot promise you that no one will face hardship in the weeks ahead."

The package of measures could push Britain's budget deficit back to 10 per cent of gross domestic product, its peak after the global financial crisis, JP Morgan economist Allan Monks said. Economist Martin Beck of Oxford Economics said: "A wartime-style temporary surge in borrowing is in prospect."


On Thursday, the Bank of England announced a £200 billion increase in its bond-buying programme and a cut in interest rates to a new all-time low of 0.1 per cent.

The wages support plan was welcomed by Britain's biggest trade union, underscoring how the crisis has forced the ruling Conservative Party to abandon its traditional market-led instincts and put the state at the centre of the economy, at least for now.

"People concerned about their jobs and livelihoods will feel hugely reassured today that the Chancellor has acted swiftly," said Unison general secretary Dave Prentis.

Mr Adam Marshall, director general of the British Chambers of Commerce, urged the government "to go foot to floor" to help firms as soon as possible.

Mr Sunak said a new loan programme for small firms that he announced this week would be running by tomorrow when further measures for the sector are announced. The loans will be available for 12 months, twice as long as previously planned.


Deutsche Bank said on Friday that Britain's economy was set to shrink by 4 per cent this year and the unemployment rate could more than double to over 8 per cent.

If the crisis proves deeper than thought, the economy could shrink by 6 per cent for its worst recession in a century.


A version of this article appeared in the print edition of The Sunday Times on March 22, 2020, with the headline 'Britain to pay up to 80% of workers' wages to limit firing'. Subscribe