Chancellor of the Exchequer Rishi Sunak has announced a new jobs “support scheme”, along with more flexible repayment terms for emergency business loans and extended support for hospitality companies.
Britain must now “learn to live with” coronavirus, Sunak told the House of Commons.
With more than one in ten UK workers currently being supported by the state furlough scheme, which is due to come to an end on October 31, the new scheme will start on November 1 and last until the end of April.
The six-month Job Support Scheme is designed to “protect viable jobs in businesses who are facing lower demand over the winter months due to COVID-19”, with eligible employees receiving at least 77% of their normal pay.
This is less generous support for the economy than the furlough scheme, where the government was paying 60% of salaries and the company was paying 20%.
Sunak said it is designed to help businesses who face a hard winter to keep employees in a job on shorter hours rather than making them redundant.
To be eligible, workers will need to work at least a third of their normal hours, with the Treasury and the employer each paying a third of the remaining two thirds not worked, so 22% of the normal total each, with the state’s contribution capped at £697.92 per month, per worker.
All small and medium-sized businesses are eligible to apply, plus larger businesses where their turnover has fallen, and companies will be allowed to apply even if they did not use the furlough scheme.
Support for self-employed workers is also being extended until the end of April, covering 20 per cent of average monthly trading profits via a government grant.
The government will also keep VAT at 5% for the tourism and hospitality sectors to the end of March next year, which comes in the same week that it introduced a 10pm curfew for pubs and restaurants.
Sunak claimed the extended VAT cut would support more than 150,000 businesses, protecting 2.4mln jobs.
The government said in its Winter Economic Plan document that it expects that large employers “will not be making capital distributions (such as dividends) while using the scheme”.
All four of the government’s existing coronavirus loan schemes will be extended to December and repayment of coronavirus bounce-back loans, where small businesses have borrowed around £38bn, will be extended from six years to 10.
“This means loans can now be extended from six to 10 years, nearly halving the average monthly repayment,” said Sunak, adding that struggling businesses can now choose to make interest-only payments or apply to suspend repayments for up to six months.
Reports suggest further measures could be on their way if the rate of growth of COVID case growth doesn’t slow, including suggestions the government may be mulling a two-week ‘circuit-breaker’ mini-lockdown.
The VAT cut extension has just ensured the survival of many otherwise threatened hospitality businesses.
Well played @RishiSunak
— Joe Cussens (@joecussens) September 24, 2020
On the markets, pub companies JD Wetherspoon (LON:JDW) and Mitchells & Butlers (LON:MAB) were both up 2%, though Fuller Smith & Turner (LON:FSTA) and Revolution Bars (LON:RBG) were little moved and Marston’s (LON:MARS) was down 1%.
The pound made some attempts to rise but was only up 0.1% to US$1.2742 by mid afternoon.
Cushioning the blow but unemployment still likely to rise
“The policy measures just announced by the Chancellor will go some way to cushioning the blow to the economic recovery from the new restrictions to contain COVID-19 and limiting the long-term hit to unemployment. But these actions won’t eliminate the hit entirely,” said Ruth Gregory at Capital Economics.
The new scheme provides less generous support for the economy than the furlough scheme, but “should help to temper the rise in unemployment at the end of the furlough scheme in October, prevent further corporate insolvencies and boost activity in the hospitality sector at the start of 2021,” she added, though adding she suspected it won’t prevent unemployment rising further, perhaps to 7% by the middle of next year.
With the “job support scheme”, perhaps costing £3bn, plus extension of the VAT cut for hospitality and tourism, costing another £1.5bn, and new extensions to the government’s four loan schemes, could all in all cost about £5bn or 0.2% of 2019 GDP, Gregory calculated.
This means that the total cost of the government’s COVID-19 support could be in the region of £200bn, or 8.9% of GDP.
“For some industries this will steady the very rocky floor beneath them, something that we have been pressing for all summer in an effort to stop the redundancy floodgates from pouring open,” said Len McCluskey, leader of the Unite trade union.
“Our fear though is that today’s assistance may come too late for far too many and leaves gaps that could see millions more facing poverty and joblessness in the coming weeks.”
Tom Selby, senior analyst at investment platform AJ Bell, noted that the new support scheme moves away from the emergency furlough lifeline with an aim to support only ‘viable’ employment.
“While this might be less generous than the furlough scheme, it at least gives some support to employees and valuable help to businesses hit hardest by lockdown measures.”
Taken together with the hospitality support and loan repayments, he felt the measures “should help ease the pressure currently being felt by businesses and workers up and down the country. However, whether it is enough to prevent a surge in unemployment as we head into winter remains to be seen.”
Institute of Directors’ director general Jonathan Geldart said: “These new measures should bring some relief to many directors fearing a harsh winter for their businesses and people. As the virus wears on, the Treasury is right to seek a balance between protection and adjustment.
“However, at first blush it’s not yet clear how much the job support scheme will help hard-pressed firms hold onto staff. The chancellor may also have missed a trick by not combining the Scheme with measures to encourage wider job creation, for instance by lowering employment costs through reduced employers’ NICs.”