Sunak doubles down on keeping economy open with jobs, loans and VAT support

Perhaps almost as eagerly anticipated as the prime minister’s public address earlier in the week, Chancellor of the Exchequer Rishi Sunak today addressed Commons with his Winter Economy Plan, which doubled down on keeping the economy open, while providing support to businesses and their employees.

The Chancellor began his statement by saying he felt “cautiously optimistic”, both concerned about keeping the economy open but taking heart from three months of consecutive economic growth, and believing the government had learned a lot of lessons from the spike in Covid cases earlier in the year.

He added, that while almost any measures to stem the spread of the virus would “threaten the recovery”, he said that the UK needs to adapt to the fact that:

“the economy is likely to undergo permanent change”

With businesses facing ‘uncertainty and reduced demand over winter’, Mr Sunak said that focus needed to shift away from a revival of the furlough scheme. He said furlough had been the right measure for the time, with people asked to stay at home needing immediate and expansive support to stay afloat.

Sunak’s new Job Support Scheme

Now, however, the Chancellor emphasised the need to keep the economy open, and as part of that, protect what he described as ‘viable jobs’. These jobs, he said, would be protected by the implementation of the government’s new Job Support Scheme, which will support ‘viable jobs’, which are those in which employees work at least one third of their regular working hours.

Under the scheme, people in viable jobs will work for at least the requisite amount of time and be paid accordingly, and then the government will subsidise the shortfall in their regular pay, up to two-thirds – essentially a training wheels initiative, between furlough and regular work.

Mr Sunak added that companies will be eligible for the new scheme, even if they didn’t sign up to the furlough scheme earlier in the year. He also said that the Job Support Scheme will last for six months, and that the self-employed grant will also be extended under similar terms and conditions to the new job scheme.

Protecting cash flow with more loan and VAT goodies

Perhaps necessarily kicking the can further down the street, the Chancellor also announced a series of measures to support businesses, via loan and VAT repayment deadline extensions.

On loans, Mr Sunak said that bounce-back loans had provided £38 billion in support, and that repayment of these loans would now be subject to ‘pay-as-you-grow’ criteria. This, in practice, means that loan paybacks have been extended from six years, to up to ten years, and that businesses can now apply for interest-only payments, or even to suspend all payments for up to six months.

The Chancellor added that 60,000 businesses had taken out business disruption loans, and that the government now plans to extend the guarantee on these loans to up to 10 years, in order to help lenders provide additional support. He added that the government would extend the deadline to apply to any of their loan schemes until the end of the year, and that it would be introducing a ‘new successor’ loan guarantee scheme In January.

On VAT, the Chancellor noted that more than 500,000 businesses had deferred over £30 billion in VAT so far this year, and that payments would now be spread out. As opposed to paying out in one block in March, businesses can now spread the payments owed over 11 smaller amounts with no additional interest, and self-employed income tax payers will be able to extend their payment over 12 months, starting from January.

His final concession was to the ailing hospitality and tourism sector, to whom he has offered to extend the current low rate of VAT – currently at 5% but previously due to revert back to 20% on 13 January 2021 – until March 31 of the new year, which he stated will help support the 2.4 million jobs in these sectors.

Responding to Mr Sunak’s statement, Shadow Chancellor, Anneliese Dodds, said the measures were welcome but too hesitant. According to Ms Dodds, she had proposed targeted wage support and repayment extensions exactly forty times, only to be rebuffed on several occasions. She added that the deadline for redundancy consultations by large schemes before end of furlough scheme was last week, so these new schemes were sufficiently late enough to give a lot of people sleepless nights. Overall, she did say that it was a “relief that the government has u-turned”.

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Jamie Gordon
Senior Journalist at the UK Investor Magazine. Also a contributing writer at the Investment Observer, UK Property Journal and UK Startup Magazine. Postgraduate of King's College London with a specialisation in Business Ethics. Interested in Development Economics and David Hume.