When Boris Johnson announced further lockdown measures earlier in September, attention naturally turned towards the Chancellor, Rishi Sunak, to see how he would support the economy, particularly those sectors affected most by the measures.
By Nick Moules, Head of Marketing, Wren Sterling
900,000 people are employed in the hospitality industry alone and even just speculation of a strict lockdown would have been enough to make bosses extremely nervous, particularly as the furlough scheme unwinds completely in October.
Mr Sunak has acted and he announced a string of measures designed to support firms who cannot accommodate full time working hours for their employees over the next six months, starting on November 1st, called the Job Support Scheme. They are:
- Employees who work a minimum of 33% of their hours will receive at least 77% of their pay
- For the remaining hours an employee doesn’t work, the government will pay a third and the employer will pay a third
- Workers on the Job Support Scheme will not be eligible for redundancy
Self-employed people will be eligible for ‘similar’ support.
- Businesses that took a government support loan are also eligible for new support terms; “Loans can now be extended from six to ten years nearly halving the average monthly repayment,” Mr Sunak said.
- Companies that deferred VAT payments until March will have the option of splitting repayments into smaller interest-free repayments spread over up to 11 months.
- Self-employed people and those who complete self-assessment forms with a tax debt of up to £30k will be able to set up a payment plan running over 12 months until January 2022.
- In a boost for the hospitality and tourism industries, the planned VAT increase from 5% to 20% will now happen on 31st March, rather than January.
What does it all mean?
The government’s overall contribution towards wages will fall substantially with these measures and places the onus on the employer to cover a greater amount than under the furlough scheme that has been in operation for the past five months. It’s basically a less generous scheme with a focus on real jobs.
Big questions remain for employers about their exposure, should a second national lockdown materialise. The section about not being able to make employees on the job support scheme redundant for the duration of the scheme means they will need to take a risk-based decision on the likelihood of their firm surviving over a prolonged period with little indication of future restrictive measures being lined up by the government.
At a broader level, the support indicates the government’s desire to protect the economy from the virus and those with long memories will remember how the Chancellor’s support ramped up in April as the effect of the lockdown on businesses became apparent. It’s a gamble but it feels possible that the Chancellor would apply additional stimulus if the situation worsens.
The Chancellor postponed his budget to focus on Covid-19, so some of the potential taxation measures mentioned in the press, particularly triple lock reform and capital gains tax, have been kicked down the road.
As has been mentioned before, Covid-19 is not the only large economic issue at the moment. The US / China trade war continues with a pivotal election taking place in the US in the first week of November. There’s also Brexit rumbling on in the background, seemingly set for a conclusion late in 2020 although there seems to be stumbling blocks in the way, not least Northern Ireland and the Internal Markets Bill.
However, avoiding a cliff-edge mass redundancy scenario that would further weigh on the public purse and already fragile consumer and business confidence seems to have been the Chancellor’s objective. Time will tell whether these measures will have the desired effect.
Wren Sterling will be providing thoughts and analysis from some of our investment manager partners in the aftermath of the US election and throughout Brexit and the Covid-19 pandemic.