The chancellor Rishi Sunak will announce in the Budget that the furlough scheme will be extended until the end of September.
The Coronavirus Job Retention Scheme has protected more than 11 million jobs since its inception and had been due to close at the end of April.
The news will be welcomed by travel trade bodies and companies, which have been calling for the extension in order to avoid job losses as Covid-19 restrictions ease.
Gemma Antrobus, owner of Haslemere Travel and Aito Agents chair, told BBC Radio 5 Live: “The extension is very welcome, it is what we in the travel industry had hoped would come through.”
However, she said the “biggest challenge” for travel is the fact that many travel businesses cannot use furlough in its current form.
“We have had to keep our businesses running, we have not able to take our foot off the brake because of the refunding and rearranging in the last year,” she said.
“We need our workforce to be able to do that, so the furlough scheme is not the be all and end all for the travel industry unfortunately.
“It would be much more useful for the travel industry if we were able to bring some of our workforce back and have them working while still on some kind of furlough scheme as well, because at the moment they are being paid to be at home.”
She also said support with business rates and VAT deferrals would be “massively helpful” to help the sector survive until holidaymakers start travelling again.
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The furlough extension will take place in two phases: the government will continue to cover 80% of wages for workers involved in the scheme, up to £2,500 a month, to the end of June. It will cover 70% of wages in July, with firms involved having to pick up the other 10%.
In August and September, the government will cover 60%, with companies contributing the extra 20%.
Furthermore, an estimated 600,000 more self-employed people will also be eligible for government help as access to grants is widened.
A fourth grant from the Self-Employment Income Support Scheme will be available to claim from April.
Hundreds of thousands more people will be eligible for the grants this time, as tax return data for 2019-20 is now available.
The estimated cost of the five-month extension will be revealed in the Budget on Wednesday but is expected to be above £10 billion, say reports.