Rishi Sunak will extend furlough payments to U.K. workers until the end of September, protecting millions of people whose jobs were suspended during the coronavirus pandemic until after restrictions are set to be lifted.

With the nation mired in a third lockdown, the government will keep paying 80% of wages for those in the program through the end of June, the Treasury said in a statement. That allowance will decline over the following three months. Assistance to the self-employed will be extended with more people eligible.

“It’s only right that we continue to help business and individuals through the challenging months ahead and beyond,” the chancellor of the exchequer said in a statement released late Tuesday.

The furlough plan is likely to be one of the most eye-catching pieces of Sunak’s annual budget statement on Wednesday and answers pleas from business groups and unions for further support while vast parts of the economy are closed. It will help prevent a surge in unemployment and add to more than 300 billion pounds ($420 billion) the U.K. has spent fighting the pandemic amid the worst slump in three centuries.

His decision on the furlough highlights the balance the Treasury is seeking to maintain in the budget. Sunak this weekend stressed the need to rein in the deficit, which is creeping toward a peacetime record of 400 billion pounds this year. At the same time, he wants to limit damage to the economy from the pandemic to avoid a wave of unemployment and sluggish recovery.

The chancellor “has to signal how he will deal with the likely Covid fallout of higher unemployment, more businesses going under and not paying back their loans, and plugging the hole in the public finances,” said Nicky Morgan, a member of the House of Lords for the ruling Conservative Party and former Treasury minister. “He may find the next year much harder than the last.”

Sunak’s Extension of Wage Support
Furlough	Government will continue to pay 80% of furloughed workers’ wages through end of June, with a 2,500-pound monthly cap In July, employers to pay 10% of wages for hours not worked; government to pay 70%, capped at 2,187.5 pounds/month In August, September, proportions switch to 20% and 60%, capped at 1,875 pounds/month
Self-Employed Grants	More than 600,000 people who previously weren’t eligible will now qualify for the grants -- including those who became self-employed in the 2019-2020 tax year A further grant will also be made after April, with details to follow

The Labour opposition said Sunak should have moved sooner on furlough and blamed the austerity under the Conservatives for weakening the economy before the virus struck.

“These changes to support schemes could have been made months ago,” said Bridget Phillipson, Labour’s shadow chief secretary to the Treasury. “Businesses and workers have been pleading with the chancellor to give them certainty.”

$100 Billion and Counting

The cost of U.K. employment support programs has much further to run

Source: Office for National Statistics

Sunak’s unprecedented largess with workers has made him the most popular members of the cabinet.

Financial markets have started focusing on the reopening, driving yields on 10-year government bonds higher than they were before the crisis began. That may embolden Sunak to set out in more detail how he’ll repair the public finances once the crisis is passed.

What Our Economists Say ...

“The extension of the furlough scheme to September will go a long way towards limiting the rise in unemployment this year. The move will likely cost around 9 billion pounds but it’ll be money well spent if it reduces the amount of long-term scarring from the pandemic.”

--Dan Hanson, Bloomberg Economics. Click here for the full REACT.

While the national debt has risen past a record 2 trillion pounds, historically low interest rates means the cost of servicing it is low. That gives the chancellor breathing space, although he’ll also have an eye on the next general election due in 2024.

“The really hard work is ahead of him,” said David Gauke, a former Tory Treasury Minister. “If it was purely economics, maybe you would wait another 6 months or a year before you needed to do anything. But governments don’t like raising taxes in the second half of a Parliament.”

The chancellor is due to start presenting his statement in the House of Commons at 12:30 p.m. On Tuesday, the Treasury said he’d outline a three-point plan aimed at continuing Covid support, fixing the public finances, and building a future economy.

Because of Covid social distancing rules, he won’t pose beforehand for the traditional photograph with his team outside his offices at 11 Downing Street. And as a teetotaler, he won’t indulge in a tipple at the dispatch box, a special privilege afforded to chancellors on budget day.

Budget measures trailed in advance by the Treasury include:

• an overhaul of market listing rules to boost the City of London
• 22 billion pounds of capital and loan guarantees to capitalize a new national infrastructure bank
• 5 billion pounds of grants for pandemic-hit businesses

There’s speculation that Sunak may also:

• extend state-backed business loans and a business rates holiday
• prolong a reduction in sales tax paid by the hospitality and attractions sectors
• maintain an reduction on stamp duty for property purchases

Growth Scenarios

The pandemic is expected to leave scars on the British economy

Source: Office for Budget Responsibility, Bank of England

Note: 4Q 2019 = 100

The Treasury may be able to upgrade its economic forecasts, reflecting a rapid program to vaccinate the population. Prime Minister Boris Johnson plans to remove final restrictions on businesses after June 21. Sunak has said he will be “honest” and “level with people” about the challenges he faces.

“Once we are on the way to recovery, we will need to begin fixing the public finances,” Sunak said on Tuesday.