UK Government Response to COVID-19

This alert is up-to-date as on 30 September 2020. This update serves as a follow up to the series of alerts issued since 23 March 2020. This does not constitute an exhaustive list of measures proposed by the UK Government. The public guidance is being continually updated by the UK Government, HM Treasury and the Bank of England which is being closely monitored.

Rishi Sunak addressed the nation on 24 September 2020 to announce his “winter economic plan”, with the resurgence of the coronavirus threatening the recovery of the UK jobs market. The chancellor outlined plans to end the £39bn furlough scheme and replace it with a wage subsidy plan, aimed at those still in work. The new plan is intended to cover the next six months and could cost up to £10bn over this time.

The new plan will be introduced from 1 November and brings in several changes:

• Wage subsidies for those who work at least a third of their usual hours – Through the Job Support Scheme, the Government will contribute towards the wages of employees who are working fewer than normal hours due to decreased demand over the winter months. Wages will be subsidised by the government, up to a cap of £697.92 per month. The programme will be open to workers across the UK even if they were not in the furlough scheme, but employees unable to work any of their normal hours will not be eligible.
• Extensions and flexibility for businesses to pay back government loans – Four loan schemes, which have already provided £58bn to companies through government lending, will have their applications extended by the Government until the end of November, with a new successor loan scheme beginning in January. Those who took out a Bounce Back Loan will have access to a new Pay as You Grow flexible repayment system and, alongside the Coronavirus Business Interruption Loan Scheme, will have the ability to extend the length of loan from six years to ten years.
• VAT reduction – Troubled sectors such as hospitality and tourism will continue to receive a temporary VAT cut from 20% to 5%, until March 2021. Businesses who deferred their VAT bills will also be given the option to pay back the deferred amounts in smaller instalments through the New Payment Scheme, rather than making one lump sum at the end of March 2021.
• Self-assessment tax deferrals – Approximately 11 million self-assessment taxpayers will have access to an additional 12-month extension from HMRC on the “Time to Pay” self-service facility, meaning payments deferred from July 2020, and those due in January 2021, will now not need to be paid until January 2022.
• The Self Employment Income Support Scheme (SEISS) – Announced separately, the chancellor is also extending the scheme for self-employed workers on similar terms to the existing scheme, with two more grants planned for between November 2020 and April 2021. However, whilst support for the self-employed was initially set at 80% and then 70% of trading profits, this has been reduced significantly to 20%.

 Key motivations for the changes:

• A focus on “viable jobs” – The new scheme is intended to ensure a focus on “viable jobs”, rather than those which will not continue after the pandemic. This will cause difficult decisions for employers regarding whether to keep certain workers.
• To ease the impact of the furlough programme ending – The Government has decided not to continue the current system and has modelled the new programme on Germany’s system of “Kurzabeit”, which tops up the wages of staff whose hours are reduced.
• Support is to be targeted on businesses which need it most – Those impacted by the pandemic who can support their employees doing a limited amount of work, but need more time for demand to recover. The scheme is only available to those whose turnover is lower now than before experiencing difficulties from COVID-19. There will be no financial assessment for small and medium enterprises (SMEs), but large businesses will have to meet a financial assessment test.
• Shifting the burden of supporting jobs from the taxpayer to the employer – Under the new scheme, the cost of hours not worked will be split between the employer and the Government (through wage support), and the employee (through wage reduction), to ensure that employees earn a minimum of 77% of their normal wage, subject to the Government contribution cap. Employers will remain responsible for paying the cost of hours worked.

Overall, Government support will be reduced significantly. This wage contribution package is far less impactful than furlough and reduces the Government’s contribution from up to 80% of workers’ wages to a maximum of 22%. However, the plan intended to avoid a cliff-edge to assistance with the furlough scheme ending.

The Job Support Scheme Factsheet, available here, provides further information on who is eligible, what the grant covers, and how to claim.

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If you have any questions, or for further information please reach out to Nicola Kerr or Mark Dorff.

Prior results do not guarantee a similar outcome.
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