Stuart has today welcomed the announcement by the Chancellor announced of the Winter Economy Plan – the next phase of the planned economic response to COVID-19, which follows the Prime Minister’s address to the nation.
There are reasons to be cautiously optimistic thanks to the comprehensive and generous response in March, which has seen three consecutive month of economic growth, millions of people moved off the furlough and back to work, and consumer spending returning. However, the resurgence of the virus threatens this recovery and it is clear we will have to live with the virus for months to come. This means the economy cannot return to exactly as it looked in March and the economic rationale for the next phase of support must be different to that which came before.
The Government are therefore focussing on dealing with the problem’s businesses face right now – supporting viable jobs through a time of depressed demand with the below measures:
Job Support Scheme
The company will continue to pay its employee for time worked, but the burden of hours not worked will be shared equally between the employee, employer and Government – one third each way. The Scheme is focused on viable jobs, so employees need to be working at least a 33% of the time, and this % will move up over time.
For example, if an employee was working 40% of the time, they would be paid for that in full by the employer. For the 60% not worked, the cost of hours would be split equally three ways – the Government and employer will both contribute 20% of wages each, and the employee gives up 20% of wages and sees their job protected. The employee would therefore earn 80% of their normal wage (40% from the company for time worked, 20% from the government for time not worked, and 20% from their employer for time not worked).
All businesses, not just those who used the furlough scheme, are eligible. Larger businesses (not SMEs) will only be eligible if their revenue has declined. Furthermore, there will be an expectation that large companies using the scheme will be constrained in their ability to make dividend payments or capital distributions to shareholders, and employees will not be able to be made redundant or given notice whilst on the scheme.
The Scheme will open from 1 November and run for six months until the end of April 2021.
Employers can use the Job Support Scheme as well as claim the Jobs Retention Bonus.
Employers now have three options: use the £1,000 Jobs Retention Bonus as a reward for bringing people back off furlough, bring people back on shorter hours and claim the wage subsidy under Job Support Scheme, or they can do both – if they bring back an employee who was on furlough, even on shorter hours, and they are still in post by January, the Government will help pay their wages during that period and provide a £1,000 bonus.
The the Government will also provide a grant extension for self-employed small businesses who used the existing SEISS scheme. Eligibility criteria will be refined to check whether the self-employed trader is still viable and trading and is suffering lower revenues as a result of COVID-19. The grant will match the average grant of the Job Support Scheme, and represent 20% of three-month earnings, for November to January.
Greater support for businesses’ cash flow
Greater flexibility for repaying loans is to be made available through the new ‘Pay As You Grow’ scheme. The Government recognise that many of the one million small businesses who have benefitted from the loan schemes have never borrowed finance before. That is why the Government want to give them greater flexibility to repay these loans over a longer period and in a way which suits their circumstances.
All borrowers will now have the option to repay their Bounce Back Loans over a longer time period by extending the term of BBLs to ten years – this will reduce their average monthly repayments by almost half. On an average £30,000 loan, this reduces the monthly payment from £532 to £309. Businesses will also be able to move to interest-only repayments for periods of up to six months – or to pause repayments entirely for the same period. It will have no impact on a business’s credit rating if they take up any of those options.
The Government will also allow CBILS lenders to extend their loans to ten years as well by extending our government guarantee, providing more flexibility and support for businesses.
Extending the deadline for new applications until the end of November for the COVID-19 Business Interruption Loan Scheme (CBILS), the COVID-19 Large Business Interruption Loan Scheme (CLBILS), and the Future Fund.
Along with Bounce Back Loans, this means all four loan schemes will now expire at the end of November. The Government will work with businesses and lenders to introduce a new loan guarantee scheme from January 2021.
Extending the temporary VAT cut for tourism and hospitality
To continue supporting the 150,000 businesses and 2.4 million jobs in tourism and hospitality, the Government are extending the temporary 5 per cent rate of VAT until the end of March 2021. When announced in July, this was originally due to end in January 2021, but the Government recognise that the tourism and hospitality sector has been severely affected by COVID-19.
Deferring repayments of VAT to support businesses during this period
Over half a million businesses have already benefitted from being able to defer Q2 2020 VAT payments until March 2021 – worth over £30 billion to over half a million businesses. The Government don’t want businesses to face large bills for deferred VAT just as the economy is getting back on its feet – which is why they are launching a new scheme to allow businesses who want extra time to pay back the VAT they owe in smaller equal monthly payments, interest-free, until the end of March 2022. On average, this means turning a one-off £60,000 payment into 11 payments of less than £6,000.
More time for self-assessment businesses to pay back
Around 1.5 million businesses who pay through income tax self-assessment benefitted from our Self-Assessment Tax Deferral, deferring an estimated £6 billion to be paid in July 2020 to the end of January 2021. To help them further, the Government are upgrading the Time To Pay service so that all 11 million self-assessment taxpayers will be able to create a 12-month payment arrangement for up to £30,000 each, and extended under the end of January 2022 – an 18 month deferral.