EXTENDING the furlough scheme for just eight months in Scotland could save 61,000 jobs, according to analysis by the Scottish Government.

Chief economist Gary Gillespie said the move would cost around £850 million but the wider economic benefits mean it could "pay for itself". 

It came as the latest figures showed the Scottish economy contracted by 19.4 per cent between April and June, highlighting the devastating impact of the coronavirus lockdown. 

Scottish ministers have repeatedly urged the UK Government to use its borrowing powers to extend its Job Retention Scheme beyond October. 

A new report by Mr Gillespie said extending the scheme on a temporary basis for eight months "could reduce unemployment in Scotland by 61,000 through the first half of next year".

It said: "Even though this is only a temporary extension of the CJRS [Coronavirus Job Retention Scheme], it has a persistent, positive impact on the labour market, preventing unnecessarily higher levels of unemployment over the next few years.

"Wider economic benefits from the extension mean that it could pay for itself, increasing GDP and potentially lowering debt as a share of GDP.

"With Covid-19 cases on the rise, it may prove impossible for certain sectors to resume economic activity in a way that is economically viable before the current employment support schemes are due to expire in October 2020. 

"Many of these businesses will have a viable long-term future, but only if they continue to be supported.

"This will help keep people in jobs while sectors of the economy currently unable to fully open recover and lead to sustained economic benefits at a relatively small cost."

Mr Gillespie explored an extension of the scheme to the end of June 2021. 

His report added: "Some other countries have longer extensions planned, such as Germany (to the end of 2021) and France (to end June 2022)."

Data published by HMRC show that the furlough scheme has protected 779,500 Scottish jobs, around 32% of the total Scottish workforce. 

Although the number of people furloughed has fallen as the economy has reopened, more than 217,000 jobs in Scotland are still estimated to be supported by the scheme.  

Economy Secretary Fiona Hyslop said the coronavirus pandemic "has had an extremely serious impact on the economy right across the UK".

She said: ““The UK Government must think again about withdrawing blanket support and they must urgently implement some form of extension which would continue to provide help for the sectors that have been most heavily affected.

"Extending the Job Retention Scheme for eight months would save 61,000 jobs in Scotland and help secure a stronger economic recovery from coronavirus. 

"Unlike the Scottish Government, the UK Government has the borrowing powers necessary to fund the extension of the Job Retention Scheme and they must act now to protect jobs and livelihoods.

“New furlough statistics for Scotland published today show wide variation between different sectors of the economy. 

"Even though in some sectors a significant number of people have gone back to work, the outlook is much bleaker in other sectors. 

"In accommodation and food services an estimated 34.4% of staff were still on furlough, and this rises to 57.5% of staff in the arts, entertainment and recreation sector.

“Of course, the furlough scheme cannot continue indefinitely, but an extension would help keep people in jobs while sectors of the economy currently unable to fully open recover and will lead to sustained economic benefits at a relatively small cost.”