In a characteristically assured performance, the Chancellor Rishi Sunak set out how he was going to keep the economy moving, protect jobs, support SMEs and the self-employed, whilst scrapping the furlough scheme.
September’s announcements by the Chancellor of the Exchequer, Rishi Sunak, was effectively the Government wrapping up the job retention scheme and economic stimulus that has shielded the UK from the fiscal realities of the COVID-19 pandemic. Despite some speculation the Government may extend the furlough scheme, the focus has instead been adjusted to help those already back in work. The Job Support Scheme will top up the wages of people in work by one-third on the condition that employees are working a minimum of one-third of their pre-COVID-19 hours. All small and medium sized businesses will be eligible and expected to cover up to one-half of their employees’ wages, while large businesses will only be eligible where their turnover has decreased during the pandemic. All claimant businesses will also continue to be eligible for the Jobs Retention Bonus.
While the Job Support Scheme will be a welcome announcement to many, it is an acknowledgement by the Government that a number of the two-to-three-million people who remain on the furlough scheme no longer have a job to return to. Although it remains uncertain what fraction may lose their jobs, a number of businesses may lack the capacity to offer staff one-third of their original assigned hours.
Currently, the Government doesn’t expect the full economic consequences of the pandemic and subsequent restrictions to become clear until the beginning of next year. But while consumer confidence had been supported by schemes such as Eat Out to Help Out, as well as the 15 per cent reduction in VAT for the hospitality and tourism industries, the possible increase in unemployment in the coming months is likely to cause a squeeze in consumer spending. As winter approach with new cases of COVID-19 continuing to emerge together with the usual flu and cold cases, this could lead to further restrictions which the Government would desperately like to avoid over Christmas. However, it is likely that additional measures will need to be announced next year, particularly around training skills for those people who lost their jobs during the pandemic.
VAT cut extension
- The 5 percent VAT rate for the tourism and hospitality industries has been extended until March 31 2021, following which it will increase back to 20 percent. Previously, the VAT rate was due to increase back to the standard rate on January 13.
Helping business cash flow
- To give businesses more time and flexibility to pay back the £38 million Bounce Back loans, the Chancellor announced a ‘pay as you grow’ scheme over six to ten years. Businesses can opt to make interest-only payments and can apply to suspend all payments for a maximum of six months.
- Businesses can also apply to spread all unpaid VAT over 11 payments interest-free, while any other outstanding taxes can be paid over 12 months beginning from January 2021.
An Original Approach?
With the new Job Support Scheme, Rishi Sunak said it will save jobs with policies that never have been tried in the UK. Added to this, he unveiled further loan schemes for businesses. The idea of supporting both employers and employees was emphasised by a photo op ahead of his statement, where he was flanked by both the General Secretary of TUC, Frances O’Grady, and the Director General of the CBI, Carolyn Fairburn.
Labour’s Shadow Chancellor Anneliese Dodds in many ways agreed with his approach for supporting jobs and businesses, which she labelled as a “U turn” and only forced by Opposition pressures. She said the Government could have and should have acted sooner, which would have saved many more job (a pointed echoed by the SNP). Ms Dodds also pointed to impact COVID-19 has had on the UK with the highest death rate in Europe and deepest recession in the G7. She also questioned him about incentives for training which Mr Sunak responded robustly by highlighting his push on apprenticeships. Whilst offering to work with the Opposition, he rather mocked their approach as to whether they wanted to extend the furlough scheme or not.
The big point the Chancellor was trying to make was that beyond the immediate measures he was proposing, COVID-19 is for the moment here to stay, and living and adapting with the new reality was the direction he wanted to take Government policy. Yes, there were immediate and crucial salvos to support jobs and businesses, responses to specific sectors beyond leisure and hospitality including aviation and housing – the green homes grant and measures for insulations he particularly highlighted in response to a question from Peter Aldous MP.
He also did respond to MPs from across the UK, lobbying for local and regional support, by a promise to look further at their individual situations. But his wider message was that he wanted to get the UK to start to rethink at a structural level and not just saving jobs, but creating new and different jobs. This was highlighted by an interchange between himself and his former boss, Sajid Javid, on the delayed publication of the National Infrastructure Strategy, with the Chancellor paying a warm tribute to Javid’s contribution, he promised this would be something he would do in the Autumn.
Much of the content of the statement was expected and heavily trailed, but this should be seen in the context of a further restructuring and rethinking of how the UK’s economy functions today and tomorrow under COVID-19. There will further announcements early next year. But we should note that lurking in the background, and certainly not highlighted today, is the impact of Brexit. As the UK approaches the true Brexit at the end of the year, the ongoing rethink of the UK economy will continue to be on the Chancellor’s mind.