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Chancellor Reveals Plans to Support Businesses Affected by Lockdowns

Gary Green
Gary Green
October 10, 2020

Chancellor Rishi Sunak has announced an expansion of the Job Support Scheme, designed to protect businesses and workers who are adversely affected by coronavirus lockdowns this winter.

The Chancellor’s new measures come just two weeks after the announcement of the Winter Economy Plan, which offers renewed support for companies and employees affected by the pandemic.

With fresh coronavirus restrictions expected to be announced on Monday, the Chancellor is hoping to protect the local economy in areas where public and hospitality venues such as pubs and restaurants are forced to close.

The government will support businesses who have to close by paying two-thirds of each employees’ salary (67%) - up to a maximum of £2,100 a month. But companies are required to pay national insurance and pension contributions as usual.

The scheme begins on 1 November and will be available for six months. There will be a review in January - when the government could reduce its contribution to wages, but that remains to be seen.

Who is eligible to claim?

Businesses whose premises are legally required to close for some period due to local coronavirus restrictions will be able to receive government grants to pay the wages of their staff. However, if a business decides to close by itself, they will be unable to claim through the scheme.

Companies that are able to continue delivery and collection services, or offer food and drink outdoors, are also included in the scheme - so long as they have to close their premises due to the restrictions.

An employee must be off work for a minimum of seven consecutive days before a business can claim their wages. The scheme is available UK-wide.

How is it different from the current scheme?

The Coronavirus Job Retention Scheme (CJRS), referred to as the ‘furlough scheme’, is set to wind-up at the end of October. Under the scheme, businesses were able to claim up to 80% of staff wages, capped at £2,500 a month. Firms had to make financial contributions from July onwards, while the government’s contributions steadily reduced over the months to 60%.

The Job Support Scheme (JSS) replaces the current furlough scheme. Under the JSS, businesses can reduce their employees’ hours without significantly cutting their pay. Workers in ‘viable’ jobs, who work a minimum of 33% of their usual hours, will receive a third of their remaining pay from the government. The employer will then pay another third to top up their wages.

The expanded support announced on Friday comes under the JSS, which also includes a £1,000 job retention bonus per worker, designed to incentivise firms to keep their staff on payroll until at least January.

Increase in cash grants for businesses

The Chancellor also announced the government would increase the current cash grants available to businesses in England, up from £1,500 every three weeks to £3,000 a month.

The grant will be payable every two weeks and will be available for businesses who have to close for a minimum of the same period.

Small businesses with a rateable value of £15,000 or lower are allowed to claim a maximum of £1,300 a month, which is lower than the current grant available.

Medium-sized businesses with a rateable value of between £15,000 and £51,000 can claim up to £2,000 a month, while larger companies can claim £3,000 a month.

Can the government afford it?

The Treasury estimates the cost of the new scheme will run into the “hundreds of millions of pounds” a month. So far, the current furlough scheme has cost almost £40billion since its launch in March. That is despite the number of people on furlough falling from 9 million in May to about 3 million in September.

The net difference between public spending and income from taxes has reached record-highs of almost £174billion so far this year, which is more than three times the £55.8bn deficit last year. Meanwhile, the national debt has reached more than £2trillion - equivalent to about 102% of GDP.

While it is a staggering amount, experts believe the expansion of the current scheme will eventually pay for itself. The cost of the alternative - job losses in the millions and rising benefit claims - could cause severe long-term damage to the economy.

While tax rises are thought to be likely - or even unavoidable - in the near future, economists have warned raising taxes could be counter-productive as it would slow Britain’s economic recovery and affect future taxable income.

Meanwhile, The International Monetary Fund has insisted governments should not worry about debt levels and has instead advised them to ramp up state spending as the best response to lessening the pandemic’s financial consequences.

If you would like to discuss how the latest scheme affects your business and your eligibility, please do not hesitate to get in touch with our experienced team who will be happy to assist you.

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