Help for economy
Chilly response to Sunak’s Winter Economy plan
Rishi Sunak: extending support
Chancellor Rishi Sunak has unveiled a new jobs and loans support package but his extended VAT cut for the hospitality and tourism sectors was not seen as nearly enough to save many struggling businesses.
He is cancelling the planned increase in VAT from 5% to 20%, which was due to come into effect in January. The lower rate of 5% will remain until 31 March next year.
From 1 November, there will be a six-month scheme designed to “protect viable jobs in businesses who are facing lower demand over the winter months due to COVID-19”.
The Treasury believes take-up of the new Job Support Scheme will be anything between two and five million people. At the top end, the scheme could cost £9billion over six months.
Mr Sunak told MPs the furlough scheme could not continue indefinitely, and that he could not commit to saving every job. He told MPs Britain can no longer put normal life on hold and called on the nation to learn to live with coronavirus ‘without fear’.
He said: “Our lives can no longer be put on hold. We have so often spoken about this virus in terms of lives lost. But the price our country is paying is wider than that.
“As we think about the next few weeks and months, we need to bear all of those costs in mind.”
Many business groups and bosses warned that his new scheme was nowhere near enough to prevent a wave of redundancies this autumn when furlough ends.
Employees eligible for the Job Support Scheme will receive at least 77% of their normal pay for six months.
To be eligible, workers need to work at least a third of their normal hours, with the government and the company each paying a third of wages for hours not worked.
Mr Sunak said all companies will be allowed to apply, even if they did not use the furlough scheme which is currently being used by more than one in ten UK workers but expires on 31 October.
Support for self-employed workers is also being extended until the end of April, covering 20% of average monthly trading profits via a government grant.
The measures announced by the Chancellor today fall some way short of what is urgently needed to rescue Scotland’s tourism industry from a perilous situation– Marc Crothall, Scottish Tourism Alliance
Mr Sunak unveiled the new measures as part of what he called a “winter economy plan” following his decision to cancel this year’s Budget.
City traders showed little enthusiasm for the plan, marking stocks down after an initial rise.
The FTSE 100 closed 76.48 points (1.35%) lower at 5,822.78, while the more domestically-focused FTSE 250 fell 1.1%.
Adam Marshall, director general of the British Chambers of Commerce, said: “The Chancellor has listened to our consistent calls for an extension of business lending schemes, more flexible repayment terms for loans, and tax forbearance measures.
“With almost 40% of our firms saying they have three months cash in reserve or less, this will lessen the immediate pressure and provide reassurance for many affected firms at a challenging time.”
Tom Selby, senior analyst at AJ Bell, commenting on the jobs support package, said: “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.”
The tourism industry gave the announcement only a lukewarm welcome.
Marc Crothall, Chief Executive of the Scottish Tourism Alliance said: “The measures announced by the Chancellor today fall some way short of what is urgently needed to rescue Scotland’s tourism industry from a perilous situation.
“The Jobs Support Scheme will only help businesses which have sufficient demand to pay these minimum hours; the majority of tourism businesses simply will not be able to do so as their businesses are either closed due to legislation or restrictions.
Tourism leaders expect more businesses to close as visitors stay away (pic: Terry Murden)
“The impact of the extension of the current rate of VAT at 5% until March 2021 will have a marginal effect on our industry, given that so many businesses will now be forced to make redundancies and close their doors for good.
“The reality we must all face now is that within the coming days and weeks, businesses owners will lose their livelihoods, thousands will lose their income and the effects on the economy and people’s lives will be nothing short of devastating.”
Joss Croft, CEO, UKinbound, said “Undoubtedly, today’s announcement will help many tourism businesses and safeguard jobs, which of course is incredibly welcome
d, however the desperate needs of British inbound tourism businesses, who bring international visitors to the UK and support tens of thousands of viable jobs, have once again been overlooked.”
Those working for themselves were also unimpressed by the announcement.
Seb Maley, CEO of Qdos commented: “It looks like freelancers and contractors have once again been cast aside when it comes to receiving meaningful support from the Government. They have been left stranded and ignored when it matters most.
“Millions of people working for themselves via their own limited company have had very little to no support for six months now. Yet it will be these independent workers who will prove crucial to the UK’s economic recovery – they will provide businesses with flexibility and skills at a time when they need them more than ever.
“Most of the measures announced by the Chancellor today offer support to businesses with employees. And while the extension to the self-employment grant and business loans could help some independent workers, the government needs to look at this specific sector and offer more tailored support if it wants the economy to bounce back quickly.”
Scotland’s Finance Secretary Kate Forbes said: “Following our repeated calls for more action to protect jobs, I welcome some of what has been announced by the UK Government.
“However, what the Chancellor has set out today does not go far enough. With only five weeks to go until the end of the furlough scheme, businesses have already taken difficult decisions and now need greater certainty and more time to plan. Our analysis suggested 61,000 jobs would be saved if the furlough scheme was extended, and it appears that from the detail this scheme will not provide the support that was hoped for.
“We also need more clarity on what this will mean for those businesses and people who are not working at present as over 217,000 people are still on furlough in Scotland.
Kate Forbes: Chancellor has removed clarity from funding (pic: Terry Murden)
“It is disappointing that these changes don’t take into account our current reality of local lockdowns, with no apparent flexibility to support local or national restrictions, or those sectors, like the events sector, that have not yet been able to reopen.
“News of the VAT deferral and extension to the VAT cut for hospitality and tourism are positive steps, however these are two of the sectors hit hardest by this pandemic, and today’s announcement doesn’t give enough support for those sectors.
“It’s also important to highlight that this is not a budget – devolved governments need clarity on funding so we can tailor our support to meet Scotland’s needs.
“As I have stressed before, we have responded to COVID-19 without the fiscal levers we require. Not only is the UK Government denying us the appropriate financial powers needed to fully respond to the pandemic, it has also removed any clarity about how much funding we will receive by deciding to scrap this autumn’s UK Budget.”
What are the changes?
The Government is extending Bounce Back Loans, Coronavirus Business Interruption Loans, Coronavirus Large Business Interruption Loans and the Future Fund until 30 November.
The Chancellor is also launching a new Pay as You Grow system which gives flexibility to businesses in repaying Bounce Back Loans. All borrowers will now have the option to repay their loans over a period of up to 10 years, reducing their average monthly repayments on the average loan by almost half.
Businesses will also have the option to move temporarily to interest-only repayments for periods of up to six months, and to pause their repayments entirely for up to six months (after they have made their first six payments)
Who will this help?
More than one million businesses have taken out a Bounce Back Loan, with an average loan size of £30,000.
These businesses can all benefit from the flexibilities available through Pay As You Grow, helping them to manage their cashflows and protect jobs.
How will it help?
A business which took out a £30,000 Bounce Back Loan would see their average monthly repayments fall from £532 to £309 (42% reduction) if they repaid the loan over 10 years rather than six. This will boost their cashflow, enabling them to support and protect jobs.
The same business could temporarily reduce their monthly repayments to just £63 if they switched to interest-only payments.
Finally, utilising a capital and repayment holiday would reduce monthly repayments to £0, allowing the business a six month period to get back on their feet before resuming repayments.
The deadlines for applications for the government-guaranteed loans are also being extended to 30 November, meaning that even more firms can benefit from loans to support their business and jobs.
In addition, the deadline for applications under the Future Fund, which provides convertible loans to innovative companies which are facing financing difficulties due to coronavirus, is also being extended to 30 November. This means more of our most innovate businesses can grow and scale up.
How does it compare?
This extension brings the application deadline for the UK’s loan guarantee schemes into line with other European countries. Loan schemes in France and Germany – which are subject to the same State Aid rules as the UK – close in December.
Germany’s Schnellkredit loans scheme also allows repayments over 10 years, but at a more expensive rate of interest (3%) than BBLS (2.5%).
The government announced a New Payment Scheme for deferred VAT
How does it work?
- All UK VAT registered businesses could access the original VAT deferral scheme and as of June 7th, £27.5bn in VAT had been deferred by 496,000 businesses.
- Under the New Payment Scheme businesses will have the option to make 11 equal payments (each around 9%) of the total deferred VAT they owe, starting at the end of March 2021 with an initial upfront payment (of around 9%).
- A business could move from paying 100% of deferred VAT due at end March to paying just 9%. The average deferred VAT per business was around £60,000. Only 9% of that would be due at end March 2021 (£5,400) rather than the full 100%
- Since March 2020, HMRC have also set up a dedicated Covid-19 helpline to support customers seeking a TTP, making 2,000 staff available on this line to handle increase demand, with over 60,000 enhanced Time to Pays have been agreed through that helpline, covering over £12bn of tax.
The government announced enhanced Time to Pay for Self-Assessment Taxpayers
- Self-assessment payments due in July 2020 were deferred to January 2021 for any taxpayer who opted in by not making their July 2020 payment . No interest or penalties applied to these deferred payments.
- Approximately 1.5 million taxpayers deferred an estimated £6 billion after the Self-Assessment Tax Deferral was announced in March 2020. This represented an estimated 45% of tax due being deferred.
- Of the 11 million self-assessment taxpayers, an estimated 2.7 million (including 1.3 million self-employed) had payments on account due in July 2020 and were eligible for the deferral. There were no sectors/ businesses excluded.
- To further support the self-employed and other taxpayers that may struggle to pay their deferred July payment on account, HMRC is upgrading its current Time to Pay “self-service” facility.
- Extending the previous offer of assistance for up to £10,000 of tax debt, from 1 October all 11 million self-assessment taxpayers will be able to benefit from a new, more generous option to form a payment arrangement of up to 12 months for their self-assessment tax due in January 2021
- Taxpayers with up to £30,000 worth of self-assessment tax debt (c95% of self-assessment taxpayers) will now be able to agree a payment plan that suits them online via the gov.uk website. Those with more than £30,000 worth of debt would still be able to arrange a payment plan with HMRC over the phone.