A Government pledge to pay 80 per cent of wages for those unable to work due to the coronavirus pandemic has brought to a halt the prospect of mass jobs losses and a “severe recession”.

That is the view of business expert Oliver McCann of law firm Napthens, who said the move, announced by Chancellor Rishi Sunak, gives struggling businesses a “viable alternative to redundancy”.

Mr Sunak said the Government would cover up to £2,500 a month for employees unable to work due to the spread of covid-19 under its newly created coronavirus job retention scheme.

Employers – including charitable and non-profit organisations – will be able to apply for grants from HMRC, he confirmed, ensuring those unable to work “are furloughed and kept on payroll rather than being laid off”.

Applications can also be backdated to March 1 for those already hit due to the rapid spread of the virus.

Meanwhile, Mr Sunak also announced a break in VAT for the next quarter and confirmed the coronavirus business interruption loan scheme will now be interest free for 12 months, rather than the six months previously announced.

McCann welcomed the measures.

“Without this support, the UK was looking at unprecedented levels of lay-offs without pay or redundancies which would have created an inevitable decline to a severe recession as consumer affordability would have declined drastically,” he said.

“The message to employers is simple – there is now a viable alternative to redundancy dismissal.

“This allows employers to trim labour overheads to meet reduced demand, but given this crisis is expected to be temporary, it enables the business to retain its experienced and trained staff until this is over, which will be critical to enable the business to pick back up quickly once this is over.

“Making staff redundant is usually a last resort, so these measures will be welcome relief for employers and employees alike.”

He added: “The new measures should ensure that employees as well as businesses can continue to support the wider economy. Employees are consumers as well as workers, so this is crucial to sustain business as a temporary measure across all sectors during this time.”

The Chancellors announcement has been roundly applauded by business leaders and politicians.

Dame Carolyn Fairbairn, director general of the CBI, said “firms and employees will respond with relief and determination”.

“It marks the start of the UK’s economic fightback – an unparalleled joint effort by enterprise and government to help our country emerge from this crisis with the minimum possible damage. An important day for our country.”

Henri Murison, Director of Northern Powerhouse Partnership, Henri Murison described the coronavirus job retention scheme as a “bold step” that will “prevent hundreds of thousands losing their jobs in the North and will prevent damage which otherwise could have taken a decade or more to repair”.

Westmorland and Lonsdale MP Tim Farron also described the announcement as a “big, bold step that so many have been crying out for”.

But he added: “This announcement will be bittersweet for the workers who have rung my office in the past 48 hours to say they have lost their jobs because their employer couldn’t afford to keep the business going for one day longer.

“The Government should backdate these measures so that those people who have been made redundant as a result of coronavirus, are able to carry on receiving the income that has been so cruelly taken from them.”

Meanwhile, the Association of Independent Professionals and the Self-Employed (IPSE) ploughed into the Government, saying the measures left the self-employed “trailing far behind employees”.

It called for the urgent creation of a Temporary Income Protection Fund, providing grants to replace a proportion of the income lost by freelancers.

IPSE’s director of policy Andy Chamberlain, described the situation for the self-employed as “drastic and grave”.

He said: “The Government has done nowhere near enough to support the self-employed. In fact, instead of supporting freelancers to help them keep their businesses going, it is pushing the self-employed into the benefits system. Worse, in the benefits system, the amount of money available will simply not be enough to cover many freelancers’ costs.”