The jobs furlough scheme set up in the wake of the coronavirus outbreak is to be extended until the end of March, Rishi Sunak has told the Commons.

In a major U-turn by the Government, the Chancellor said the move is needed because of the economic situation caused by the Covid-19 pandemic.

Mr Sunak said the Government’s highest priority remains “to protect jobs and livelihoods”.

He had previously extended the furlough throughout November due to the second national lockdown in England.

The Chancellor told the Commons: “We can announce today that the furlough scheme will not be extended for one month, it will be extended until the end of March.

“The Government will continue to help pay people’s wages up to 80% of the normal amount.

“All employers will have to pay for hours not worked is the cost of employer NICs and pension contributions.

“We will review the policy in January to decide whether economic circumstances are improving enough to ask employers to contribute more.”

The move comes after the Government continually resisted pressure to extend the furlough scheme, which pays 80% of wages up to £2,500 a month and was originally supposed to end in October.

It is understood the Treasury has not put a cost on extending the furlough initiative through to March as it will depend on take-up levels.

But it has so far cost about £5 billion a month.

The Chancellor defended the Government’s actions in the face of the Covid crisis, and insisted the second lockdown in England is the “only viable solution left to protect our NHS”.

He told MPs: “Given these changed public health restrictions and the economic trauma they would cause in job losses and business closures, I felt it best to extend the furlough scheme rather than transition at that precise moment to the new job support scheme.

“Political opponents have chosen to attack the Government for trying to keep the economy functioning and to make sure the support we provide encourages people to keep working.

“And they will now no doubt criticise the Government on the basis that we have had to change our approach. But to anyone in the real world that’s just the thing you have to do when the circumstances change.”

Mr Sunak also outlined support for the self-employed.

He told MPs: “For self-employed people, I can confirm the next income support grant, which covers the period November to January, will now increase to 80% of average profits up to £7,500.”

Extending the self-employed grant will cost an additional £2.8 billion from November through to January, taking the cost of the scheme to £7.3 billion.

Mr Sunak bowed to pressure from the devolved administrations and said “upfront guaranteed funding” for them will increase by £2 billion.

He said: “I also want to reassure the people of Scotland, Wales and Northern Ireland. The furlough scheme was designed and delivered by the Government of the United Kingdom on behalf of all the people of the United Kingdom, wherever they live.

“That has been the case since March, it is the case now and will remain the case until next March.

“I can announce today that the upfront guaranteed funding for devolved administrations is increasing from £14 billion to £16 billion.”

The Chancellor added he will “leave it to the people” to decide whether the Government’s actions are right.

But Labour’s shadow chancellor Anneliese Dodds said the Chancellor is “always a step behind”.

She told MPs: “Businesses and workers have been pleading for certainty from this Government, but the Chancellor keeps ignoring them until the last possible moment after jobs have been lost and businesses have gone bust.

“Now when the lockdown was announced, the Prime Minister said furlough would be extended for a month – five hours before that scheme was due to end.

“Two days later, realising the self-employed had been forgotten, there was a last-minute change to the self-employed scheme.

“And now, further changes. The Chancellor’s fourth version of his winter economy plan in just six weeks. The Chancellor can change his mind at the last minute, but businesses can’t.

“We need a Chancellor who is in front of the problems we face, not one who is always a step behind.”