Winter Economy Plan – Analysis
The Winter Economy Plan
Chancellor Rishi Sunak today offered his economic response to the news that the UK is midst the rising tide of a second wave of the COVID-19 pandemic.
After weeks of wrestling over whether to proceed with a full Autumn Budget, the Chancellor has opted at short-notice to reserve HMT’s firepower, likely until the Spring, when an economic reboot will be most needed. Instead, he chose to issue a Part 2 to his original ‘Plan for Jobs’ this summer, with a second ‘mini-Budget’ of measures targeted at sustaining viable jobs and limiting the economic hit faced over the coming months.
This nimble approach has been broadly welcomed, including in a deliberately conciliatory (with a hint of ‘I told you so’) response from the Shadow Chancellor, as she looks to position the Opposition in the national interest – in keeping with Sir Keir Starmer’s speech to the Labour Party Conference at the start of this week. The schemes to support business cash flow will come as a relief to many – particularly within the hospitality sector. The new ‘Pay as You Grow’ loans over a longer time period also reflects Treasury’s approach of ‘backing winners’ to ensure value for money.
However, the new Job Support Scheme, reflective of the existing German ‘Kurzarbeit’ scheme, does openly mark a significant downgrade on the existing furlough programme – deemed unsustainably costly. Which is why the Chancellor was clear “I cannot save every business, I cannot save every job”. These measures are about targeting support at those jobs and businesses which hold a genuine chance of recovery if they can be supported through the current uncertainty.
However, asking employers to pay 55% of salaries for employees working only 33% of their usual hours is a difficult ask. As is the extension of the self-employment scheme at a reduced rate of 20% of average monthly trading profits. A rise in unemployment is seen, sadly, as unavoidable – which is why the Chancellor was at pains to emphasise that the responsibility for learning to live with this virus rests not only with the government, but with all of us.
Summary of announcements
Support for employment
Job Support Scheme
- From 1 November 2020, a new Job Support Scheme will be introduced in place of the current Coronavirus Job Protection (furlough) scheme, which will look to “protect viable jobs in businesses who are facing lower demand over the winter months”.
- The new scheme, which will run for six months, will compromise of government and business contributions to employee wages.
- Employees will need to work a minimum of 33% of their usual hours to be eligible for the scheme.
- For every hour not worked, the employer and the government will each pay one third of the employee’s usual pay, and the government contribution will be capped at £697.92 per month.
- Under the scheme, employees will receive at least 77% of their normal pay, where the government contribution has not been capped. The employer will be reimbursed in arrears for the government contribution.
- The employee must not be on a redundancy notice. The scheme is open to all employers with a UK bank account and a UK PAYE scheme. All Small and Medium-Sized Enterprises (SMEs) will be eligible; large businesses will be required to demonstrate that their business has been adversely affected by COVID-19, and the government expects that large employers will not be making capital distributions (such as dividends), while using the scheme.
SEISS (Self-Employment Income Support Scheme) Grant Extension
- The SEISS Grant Extension will be limited to self-employed individuals who are currently eligible for the SEISS and are actively continuing to trade but are facing reduced demand due to COVID-19.
- The scheme will last for six months, from November 2020 to April 2021. The extension will be in the form of two taxable grants. The first grant will cover a three-month period from the start of November until the end of January. This initial grant will cover 20% of average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £1,875 in total.
- The second grant will cover a three-month period from the start of February 2021 until the end of April 2021. The government will review the level of the second grant and set this in due course.
Easing the burden on business
Extending the temporary VAT reduced rate for hospitality and tourism
- The government is extending the temporary reduced rate of VAT (5%) from 12 January to 31 March 2021. This will continue to apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises, supplies of accommodation and admission to attractions across the UK.
The Government is extending four temporary loan schemes to 30 November 2020 for new applications.
- Bounce Back Loan Scheme (BBLS)
- Loans under BBLS are between £2,000 and £50,000, capped at 25% of turnover, with a 100% government guarantee to the lender.
- The borrower does not have to make any repayments for the first twelve months, with the government covering the first twelve months’ interest payments. Under the new Pay as you Grow options (see below), Bounce Back Loan borrowers will all be offered the choice of more time and greater flexibility for their repayments.
- Coronavirus Business Interruption Loan Scheme (CBILS)
- The scheme provides loans of up to £5 million with an 80% government guarantee to the lender. The government does not charge businesses for this guarantee and also covers the first twelve months of interest payments and fees.
- Coronavirus Large Business Interruption Loan Scheme (CLBILS)
- The scheme provides loans of up to £200 million (to a maximum of 25% of turnover), with an 80% government guarantee to the lender.
- Future Fund
- The Future Fund investment scheme for “innovative and fast-growing UK-based businesses” has provided loans ranging from £125,000 to £5 million which are subject to at least equal matching from private investors. Businesses that have already accessed a Future Fund convertible loan cannot apply for another one.
Pay as you Grow
- The government will give all businesses that borrowed under the BBLS the option to repay their loan over a period of up to ten years.
- UK businesses will also have the option to move temporarily to interest-only payments for periods of up to six months (an option which they can use up to three times), or to pause their repayments entirely for up to six months (an option they can use once and only after having made six payments).
CBILS loan extension
- The government intends to allow CBILS lenders to extend the term of a loan up to ten years, providing additional flexibility for UK-based SMEs.
VAT deferral ‘New Payment Scheme’
- The government will give businesses which deferred VAT due in March to June 2020 the option to spread their payments over the financial year 2021-2022. Rather than paying in full at the end of March 2021, businesses will be able to choose to make 11 equal instalments over the course of 2021-22.
- All businesses which took advantage of the VAT deferral can use the New Payment Scheme. Businesses will need to opt in, but all are eligible. HMRC will put in place an opt-in process in early 2021.
Enhanced Time to Pay for Self-Assessment taxpayers
- The government will give the self-employed and other taxpayers more time to pay taxes due in January 2021, building on the Self-Assessment deferral provided in July 2020.
- Taxpayers with up to £30,000 of Self-Assessment liabilities due will be able to use HMRC’s self-service Time to Pay facility to secure a plan to pay over an additional 12 months. This means that Self-Assessment liabilities due in July 2020 will not need to be paid in full until January 2022.
- Any Self-Assessment taxpayer not able to pay their tax bill on time, including those who cannot use the online service, can continue to use HMRC’s Time to Pay Self-Assessment helpline to agree a payment plan.
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