Chancellor Rishi Sunak has this afternoon delivered his Winter Economy Plan to the House of Commons.
In response to the recent rise in Covid-19 cases and the introduction of new restrictions expected to last for the next six months, the Chancellor cancelled the planned autumn Budget and instead made a short statement on the government’s immediate plans to support jobs and the wider economy over the winter. Before the statement was delivered in Parliament, Sunak was pictured outside No. 11 with the heads of the CBI and the TUC, signalling this was a set of measures that had the endorsement of both businesses and workers.
The decision to cancel the Budget, which would have included details of the government’s long-term fiscal recovery plan, was only made over the last few days. Today’s announcement reflects a recognition that the potential impact of a second wave of Covid-19 has made longer-term economic planning difficult and the government needs to take a flexible approach to the economic challenges ahead. The government has today taken the opportunity to act quickly to prevent a sudden increase in unemployment following the end of the furlough scheme in October and instead allow for a more manageable increase in unemployment.
Officially the government is still aiming to publish a multiyear spending review before the end of the year that would set out departmental budgets until 2024. However, a more likely scenario given the economic uncertainty is for the government to publish a one-year settlement to allow departments to plan for 2021/22. It is expected that the next full Budget will take place before the next fiscal year, likely in March 2021.
The main elements of the Chancellor’s Winter Economy Plan are:
- A new Job Support Scheme will begin on 1 November, following the end of the furlough scheme, which will involve the government subsidising the wages of employees working reduced hours. The scheme will last for six months and apply to any employees working a minimum of 33% of their hours. For the remaining hours not worked, the government and the employer will each pay one-third of the employee’s wages. This would mean employees working 33% of their hours will receive 77% of their pay. The grant from government will be capped at £697.92 per month.
- Workers on the Job Support Scheme will not be able to be made redundant and there will be restrictions on capital distributions to shareholders for larger firms that use the scheme. The Chancellor also announced that only large businesses that can prove they have been adversely affected by Covid-19 would be eligible for the Job Support Scheme. The Scheme will sit alongside the Jobs Retention Bonus for workers kept on until the start of February 2021.
- The Self-employment Income Support Scheme extension will support viable traders facing reduced demand over the winter months and will cover 20% of average monthly trading profits via a government grant.
- CBILS, CLBILS, BBLS and the Future Fund are being extended to 30 November, with new loan applications being accepted up to this date. Loan offers will be able to be processed up until 31 December.
- A ‘pay as you grow’ scheme will allow businesses that took Bounce Back loans to extend the term of their loan to ten years, as well as allowing businesses to make interest-only payments or suspend payments for six months. No business making use of the pay as you grow scheme will have its credit rating affected. CBILS loans will also be able to have their terms extended up to ten years, with a new loan scheme to be announced in January.
- Businesses who deferred their VAT payment will not need to pay a lump sum in March 2021 and will be allowed to split their VAT bill into smaller, interest-free payments over 11 months during the 2021/22 financial year.
- To support the tourism and hospitality sectors, the Chancellor has stated that the temporary reduction of VAT rates from 20% to 5% will remain in place until 31 March 2021, rather than 13 January.
The expected value of the package announced is around £5 billion, leaving the government with more firepower to support the economy should Covid-19 restrictions become more severe. Anneliese Dodds, the Shadow Chancellor, said it was “a relief” government had U-turned on the need for more support for workers but criticised the government for not acting soon enough. Paul Johnson, Director of the Institute for Fiscal Studies, has also warned that the limits of the new Job Support Scheme mean that the UK will see a large rise in unemployment over the winter.