Rishi Sunak preparing to wind down furlough scheme from July

The chancellor, Rishi Sunak, is preparing to wind down the coronavirus wage-subsidy scheme for workers from July as part of government plans to gradually remove lockdown measures.

In a sign of the mounting costs to the exchequer with almost a quarter of employees in Britain furloughed in the past fortnight, the chancellor is expected to announce that the Covid-19 job retention scheme will be steadily scaled back as restrictions on business activity are lifted.

The Treasury is understood to be examining several options for tapering the scheme, including cutting the 80% wage subsidy paid by the state to 60% and lowering the £2,500 cap on monthly payments. Another option promoted by employers’ groups to allow furloughed staff to work, but with a smaller state subsidy, is also under consideration.

Sources indicated that a final decision has yet to be made, but the Treasury was working closely with No 10 as Boris Johnson prepares to outline plans on Sunday to gradually lift lockdown restrictions. After more than a month of tight controls on social and business activity across Britain and in other countries around the world, the UK is on the brink of the deepest recession in living memory.

Sunak is expected to announce details of the plan before the middle of May, because employers with more than 100 staff must run a 45-day consultation before making any redundancies. With the furlough scheme due to close at the end of June, firms will need to start making decisions from as early as next week, piling pressure on the chancellor to provide refreshed guidelines or face a wave of potential job losses.

Figures released this week by HMRC showed that a total of 6.3m jobs have been temporarily laid off by 800,000 companies, as firms across the country flock to take advantage of the job subsidy scheme.

Launched on 20 April, the programme involves the Treasury paying 80% of the wages of workers up to a maximum of £2,500 per month to prevent them being laid off by their employers.

Given rapid take up of the scheme, the costs to the public purse have steadily spiralled into the billions. HMRC said the total value of claims so far amounted to £8bn by 3 May.

The Office for Budget Responsibility has estimated that the scheme could cost £42bn over three months if as many as 8.3 million people are furloughed at an 80% subsidy.