Chancellor Rishi Sunak has announced that the current furlough scheme will now be extended to April 30 next year.
The government will continue to contribute 80 per cent towards wages in a move the chancellor said would give businesses and employees certainty into the New Year.
As well as extending the Coronavirus Job Retention Scheme (CJRS), government-guaranteed Covid-19 business loan schemes will also be extended until the end of March 2021.
The changes come ahead of the Budget, which the chancellor has confirmed will take place on March 3, 2021, and which he said would deliver the next phase of the plan to tackle the virus and its impact on the economy.
Under the CJRS scheme, employers will only be required to pay wages, National Insurance Contributions (NICS) and pensions for hours worked and NICS and pensions for hours not worked.
The government says that eligibility criteria for the scheme will remain unchanged.
Originally the chancellor said he would review the employer contribution element of the CJRS in January, but he decided to bring that review forward to allow businesses to plan ahead for the remainder of the winter and the New Year.
Up to now the furlough scheme has supported 9.6 million jobs across the UK, with more than one million businesses using it.
Businesses will also be given until the end of March to access the Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme, and the Coronavirus Large Business Interruption Loan Scheme. These had been due to close at the end of January.
The schemes have already provided more than £68bn in guaranteed loans, and helped to keep afloat business in all sectors of the UK economy who have been impacted by coronavirus.
The government has already announced that more support will be available beyond March 2021, through a successor loan scheme.
It says more details of the scheme will be announced in due course, with a further update on wider Covid-19 economic support in the Budget statement.
Commenting on the announcement, business secretary Alok Sharma, said: “While our loan schemes have provided a vital lifeline to millions of firms across the country, we know that business owners need additional certainty as we head into the New Year.
“Extending government-backed loan schemes will give companies right across the UK the finance they need to support, protect and create jobs as we build back better from the pandemic.”