Coronavirus: Rishi Sunak’s plan to pay workers’ wages will cost taxpayer ‘billions each month’, says IFS

Think tank says final bill for chancellor’s plan is ‘unknowable’ as concerns persist over fate of millions of self-employed

The employment support package announced by the chancellor, Rishi Sunak, will cost the taxpayer billions of pounds a month to keep going, an influential think tank has said.

Paul Johnson, director of the Institute for Fiscal Studies (IFS), said the final cost of paying up to 80 per cent of wages for employees who face losing their jobs during the coronavirus outbreak was “unknowable”.

Mr Johnson said that if the support – of up to £2,500 per month – is claimed for 10 per cent of employees, it could cost the government £10bn over three months.

Announcing the plans on Friday, Mr Sunak said the government would do “whatever it takes” to help workers in the coming months, as it closed schools, pubs and restaurants and urged people to stay at home to curb the spread of the coronavirus.

The move followed intense pressure from MPs and unions to help workers who were not covered by the chancellor’s £350bn bailout for businesses earlier in the week.

Meanwhile, ministers are facing concerns over the fate of millions of self-employed people, who are vulnerable to financial hardship as work dries up.

The IFS warned that there were flaws in the design of the plans, which it said had been hastily drawn up and gave incentives to bosses to put half of their employees on temporary leave.

“The cost of the wage subsidy package is unknowable at present but will run into several billion pounds per month that it is in operation,” Mr Johnson said.

“It is clearly a policy designed in haste and will require considerable speed and flexibility from HMRC to deliver. As a result, there are obvious concerns about its design.

“An employer with 10 employees might have enough work to keep them all occupied half-time. This policy gives a very clear incentive to furlough half of them and keep half of them on full-time.

“There may also be concerns about policing this, especially for owner-managed companies paying wages to the owner.”

Mr Johnson said increases to universal credit allowances will benefit 4 million people at a cost of £2bn, raising the weekly basic benefit for a single adult over 25 from £73.34 per week to £92.57.

However, he said the government was still struggling to find effective ways to support the self-employed, contractors and freelancers.

Former Tory cabinet minister David Davis said the economy could suffer a near “fatal seizure” if they are not protected.

“It is absolutely necessary. Without this, the whole of the British economy will have a seizure – almost a fatal seizure in economic terms,” he told the BBC.

“It is great for those who have got jobs, but it does miss out a pretty important sector of the economy – namely the self-employed – and he [Mr Sunak] is going to have to find a way of replicating this for the self-employed as well.”

His call was backed by the TUC’s general secretary, Frances O’Grady, who said: “We have got members in industries from construction to the creative industries and this will cause real hardship unless we get to grips with it.”

Steve Barclay, chief secretary to the Treasury, said the issue for the government was about “operationally what is difficult to do and what can be delivered to the timescales were are working to”.

He said the self-employed were being helped through measures such as the deferral of self-assessment tax requirements, payment holidays for mortgage payers, and the strengthening of the welfare “safety net”.