LONDON (REUTERS) - The British government will pay a massive share of private sector wage bills to discourage bosses from firing staff in an unprecedented move to prop up the economy through the coronavirus shutdown.
"Today, I can announce that 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 (March 20).
He said there would be no cap on the size of the plan which the government would fund by selling more debt.
Sunak also allowed businesses to hold on to £30 billion (S$50 billion) of value-added tax (VAT), which they would normally pass on to tax authorities over the next three months.
"That is a direct injection of over £30 billion of cash to businesses, equivalent to 1.5 per cent of GDP," he said at a news conference to announce measures to support the economy.
Moments earlier, Prime Minister Boris Johnson ordered the closure of pubs, restaurants, gyms, nightclubs and other businesses from Friday to slow the spread of the virus.
Sterling weakened by around a cent against the US dollar and the euro as Johnson announced the shutdown and Sunak set out measures to mitigate its impact.
Sunak, who has announced tens of billions of pounds worth of other measures to help companies this month, said the government would give grants to cover 80 per cent of workers' salaries - up to £2,500 a month each - if firms kept them on.
"The truth is we are already seeing job losses and there may be more to come," Sunak said. "I cannot promise you that no one will face hardship in the weeks ahead."
NEED FOR SPEED
The 39 year-old former Goldman Sachs analyst, in the job for just over a month, said the grant system for helping meet the wages of workers would be up and running by the end of April, run for at least three months and be backdated to March 1.
Other measures included an extra £7 billion for the welfare system.
The 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 rush to ramp up the role of the state in the economy.
"People concerned about their jobs and livelihoods will feel hugely reassured today that the chancellor has acted swiftly,"said Dave Prentis, general secretary of Unison.
Adam Marshall, director-general of the British Chambers of Commerce, urged the government to move quickly.
"The government now needs to go foot-to-floor to ensure that details of the job retention scheme and loan guarantees reach firms on the ground as soon as possible," he said.
Sunak said a new loan programme he announced earlier this week, offering up to £5 million in emergency credit to small and medium-sized firms, would be running by Monday when further measures for the sector would be announced.
Deutsche Bank said Britain faced a 4 per cent contraction in its economy in 2020 and the unemployment rate could more than double to over 8 per cent.
If the crisis proved deeper than thought, Britain's economy could shrink by around 6 per cent, making it the country's worst recession for a century, the bank said.
On Thursday, the Bank of England cut interest rates to a new all-time low of 0.1 per cent and announced a huge increase in its bond-buying programme.
Supermarket chain Tesco said shortly after Sunak's announcement that it planned to hire 20,000 staff for at least 12 weeks.
Other countries around the world are also scrambling to come up with ways to temper the impact of the stringent measures to slow the spread of coronavirus.
In the United States, the Trump administration and Congress are negotiating a US$1 trillion-plus (S$1.4 trillion) package including sending checks of up to US$1,200 to individuals, help for small firms and their staff and support for the health system.