The Chancellor used the Budget to confirm that furloughed workers will continue to receive 80 per cent of their wages for the next seven months.
However, businesses will be asked to contribute more to the scheme, starting with a 10 per cent contribution from July and a 20 per cent contribution from August.
Meanwhile, the Treasury will run two further rounds of its grants for the self-employed scheme, with the fourth round covering February to April and a fifth and final round covering from May onwards.
The fourth grant will provide three months of support at 80 per cent of average trading profits while the fifth grant will be more targeted, with the worst affected still getting 80 per cent while others will get 30 per cent.
Mr Sunak has opted to extend the handouts long beyond Boris Johnson’s target date for a return to something close to normal life in England of June 21.
The moves will therefore inevitably prompt concerns that the PM’s coronavirus roadmap for reopening could be delayed or that there could be another national shutdown in the future.
The costs of the government’s response to coronavirus have racked up dramatically since Rishi Sunak delivered his first Budget last March
Government borrowing could be close to £400billion this financial year and is expected to stay high for years to come
Mr Sunak told the House of Commons: ‘Every job lost is a tragedy which is why protecting, creating and supporting jobs remains my highest priority.
‘So, let me turn straight away to the first part of this Budget’s plan to protect the jobs and livelihoods of the British people through the remaining phase of this crisis.
‘First, the furlough scheme will be extended until the end of September. For employees there will be no change to the terms, they will continue to receive 80 per cent of their salary for hours not worked until the scheme ends.
‘As businesses reopen, we will ask them to contribute, alongside the taxpayer, to the cost of paying their employees.
‘Nothing will change until July when we will ask for a small contribution of just 10 per cent and 20 per cent in August and September.
‘The Government is proud of the furlough, one of the most generous schemes in the world, effectively protecting millions of peoples’ jobs and incomes.’
The furlough scheme has so far cost the UK an estimated £53billion, running at approximately £5billion a month. It had been due to finish at the end of April.
The Chancellor also said support for the self-employed will continue but that the grant scheme will be made more targeted for the fifth and final round.
‘Support for the self-employed will also continue until September with a fourth grant covering the period February to April and a fifth and final grant from May onwards,’ he said.
‘The fourth grant will provide three months of support at 80 per cent of average trading profits.
‘For the fifth grant people will continue to receive grants worth three months of average profits with a system open for claims from late July.
‘But as the economy reopens over the summer, it is fair to target our support towards those most affected by the pandemic.
‘So people whose turnover has fallen by 30 per cent or more will continue to receive the full 80 per cent grant.
‘People whose turnover has fallen by less than 30 per cent will therefore have less need of taxpayer support and will receive a 30 per cent grant.’
Official numbers published last month showed state debt was above £2.1trillion in January
Mr Sunak also announced a ‘major improvement’ in access to the self-employment scheme which will allow hundreds of thousands more people to access the handouts.
He said: ‘When the scheme was launched, the newly self-employed couldn’t qualify because they hadn’t all filed the 19/20 tax return but as the tax return deadline has now passed I can announce today that provided they filed a tax return by midnight last night over 600,000 more people, many of who became self-employed last year, can now claim the fourth and fifth grants.
‘Over the course of this crisis we will have spent £33billion supporting the self-employed, one of the most generous programmes for self-employed people anywhere in the world.’
The decision to extend furlough immediately prompted a wave of memes to be posted on Twitter by users contrasting the announcement with Mr Johnson’s June 21 back-to-normal date.
Spelling out the impact the coronavirus crisis has had on the public finances, Mr Sunak said the Government had already pledged £280billion of support before today’s Budget.
The Chancellor said it is going to take the UK and the wider world ‘a long time to recover from this extraordinary economic situation’.
But he said the Office for Budget Responsibility’s forecasts are now more optimistic than they were previously.
He told MPs: ‘The OBR now expect the economy to return to its pre-Covid level by the middle of next year – six months earlier than previously thought.
‘That means growth is faster, unemployment lower, wages higher, investment higher, household incomes higher.
‘But while our prospects are now stronger, coronavirus has done and is still doing profound damage.
‘And today’s forecasts make clear repairing the long-term damage will take time.
‘The OBR still expect that in five years’ time, because of coronavirus, our economy will be three per cent smaller than it would have been.’
He added: ‘The OBR forecast that our economy will grow this year by four per cent, by 7.3 per cent in 2022, then 1.7 per cent, 1.6 per cent and 1.7 per cent in the last three years of the forecast.’
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