Chancellor Rishi Sunak has unveiled plans for employers to start paying towards their furloughed staff and extend reduced support to self-employed workers.
Changes to the Coronavirus Job Retention Scheme (CJRS) will enable businesses to bring back staff part time from July and introduce a taper requiring firms to contribute to their salaries from August onwards.
In the face of growing calls, Mr Sunak has announced that financial help would also be extended for sole traders for a further three months, although the grant available would be reduced by 10% to 70% of their profits.
The government also announced the furlough scheme will close to new entrants on 30 June, but the programmes of financial support will not be extended past October.
The moves come as ministers seek to get people safely back to work and restart the stalled economy, as the coronavirus lockdown is eased.
Speaking at the daily coronavirus press conference, Mr Sunak said: "As we reopen the economy, there is broad consensus across the political and economic spectrum, the furlough scheme cannot continue indefinitely."
However, fears will persist that the reduced level of support for workers could lead to a wave of redundancies as the economy heads into a deep recession.
Announcing the latest measures, Mr Sunak added: "Our top priority has always been to support people, protect jobs and businesses through this crisis.
"The furlough and self-employment schemes have been a lifeline for millions of people and businesses.
"We stood behind Britain's businesses and workers as we came into this crisis and we stand behind them as we come through the other side.
"Now, as we begin to re-open our country and kick-start our economy, these schemes will adjust to ensure those who are able to work can do so, while remaining amongst the most generous in the world."
The job retention scheme has so far helped a million businesses cover the wages of 8.4 million staff unable to work during lockdown, at a cost of £15bn.
In June and July, the existing support will continue with the government still paying 80% of furloughed employees' salaries, capped at £2,500, with firms not required to pay anything.
However, from 1 July - a month earlier than previously announced - firms will be able to bring staff back part time, but will be responsible for paying their wages while in work.
The main changes kick in from August when the level of government support will begin to reduce and businesses will have to start to contribute.
- August - The government will pay 80% of wages up to a cap of £2,500, but employers will start to pay national insurance and pension contributions
- September - The government will pay 70% of wages up to a cap of £2,190, with employers paying 10% of wages as well as contributions
- October - The government will pay 60% of wages up to a cap of £1,875, with employers paying 20% of wages plus contributions
Mr Sunak also announced that support for the self-employed would also be extended, although at a reduced rate.
The Self-Employment Income Support Scheme has so far seen 2.3 million claims worth £6.8bn.
Those eligible will be able to claim a second and final grant in August, although this will be only cover 70% of their profits over a three month period, capped at £6,570, rather than the previous more generous payment which covered 80%, capped at £7,500.
Applications for the second grant will open in August.
The chancellor said that efforts must now turn towards economic recovery, and there would be "no further extensions to the schemes".
"Now, our thoughts, our energies, our resources must turn to looking forward to planning for the recovery and we will need the dynamism of our whole economy as we fight our way back to prosperity.
"Not everything will look the same as before. It won't be the case that we can simply put the key in the lock, open the door and step into the world as it was in January.
"We will develop new measures to grow the economy, to back business, to boost skills and to help people thrive in the new post-COVID world.
"Today, a new national collective effort begins to reopen our country and kick-start our economy."
The Institute for Fiscal Studies (IFS) estimates the total cost of the support programmes could "easily breach £100bn - about 11% of total government spending in a normal year".
The director of the IFS, Paul Johnson, added: "Extending the CJRS to part-time workers and allowing this to start a month earlier than previously announced makes sense. It won't help those who are already working part-time - unless their employers furlough them before June 10th and bring them back part time in July.
"Keeping the payment to furloughed employees at 80% throughout risks undermining the emphasis on persuading people to return to work either full or part time."
Responding, CBI director-general Dame Carolyn Fairbairn, said: "The changes announced will help ensure the schemes stay effective as we begin a cautious recovery.
"Introducing part-time furloughing as more stores and factories start to open will help employees to return to work gradually and safely."
However, she warned that firms not able to open until later such as pubs and restaurants may need further support in the coming months.
TUC General Secretary Frances O'Grady also welcomed the changes but stressed the need for the government to look to the future.
She said: "The UK cannot afford the misery of mass unemployment. The government must start planning now to build on the job retention scheme with a national recovery plan that prioritises protecting and creating jobs."
Adam Marshall, director general of the British Chambers of Commerce said: "The furlough scheme has helped companies preserve millions of jobs through lockdown, but many firms still face significant uncertainty ahead.
"On that basis, closing the scheme to new applicants in June feels premature, and risks undermining some of the work already done to preserve businesses and jobs."
Analysis: The chancellor could be the only cabinet minister to have improved his reputation during the pandemic
By Joe Pike, political correspondent
Rishi Sunak has again surprised business with the generosity of his latest big announcement: companies will begin to contribute to the salaries of furloughed staff at a far slower rate than many expected.
The Chancellor knows this is the critical moment, the point of maximum danger. So far he is perhaps the only cabinet minister to have significantly improved his reputation during this crisis. That could soon change.
With the Treasury's COVID-19 support package due to end this autumn, many businesses are already calculating which staff to keep and which to sack.
If in the coming months we see mass job losses, Sunak's job retention scheme will have been a failure, and one with a price tag of approximately £80 billion. He won't have prevented redundancies, just delayed them.
To try and avoid that, he is withdrawing the economic life-support slowly and carefully.
There may be disappointment at the lack of 'sector specific deals' for industries like hospitality and the arts, which may struggle to return to normal before they have to start contributing to the pay of furloughed staff.
And the big unknown remains consumer confidence. Yes, employees can return to their offices and workplaces, but if people and companies aren't spending, it's pointless. And the UK's coronavirus recession could then be even worse than feared.
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