How the British Government Is Aiding Businesses Stifled by COVID-19 Restrictions

By Jemima McEvoy Monday, October 12, 2020

Great Britain has not had an easy time with the pandemic. After conquering a tough initial outbreak starting in April, coronavirus cases have been surging again since early September. Currently, the United Kingdom ranks 35th in terms of countries reporting the highest number of infections per capita, with an average of nearly 7,000 new cases each day, and has had to introduce stringent new measures to contain the virus’s spread.

Amid the continued outbreaks and consequent bolstered restrictions, British businesses have been suffering. Here’s the government’s most recent efforts to help — and what they could mean for struggling entrepreneurs.

With the virus lingering longer than expected, previous avenues of aid, including the country’s furlough scheme, were on the brink of expiration. As a result, late last month, the government introduced a new emergency package of measures intended to support the country’s workers and businesses. The Job Support Scheme, introduced by U.K. Finance Minister Rishi Sunak on September 24, aims to stop mass job cuts over the next six months.

The way it will work is that the British government will subsidize the pay of employees who have been forced to work fewer hours than normal due to stunted demand. Employees working at least a third of their usual hours can qualify and in short, employers will pay their workers for the hours they do complete. The government will pay employees for the hours they would usually work, but can’t. This program is expected to cost the British government £300 million ($388 million) per month and will last for half a year. All small- and medium-sized businesses are eligible for the scheme, as are select larger businesses whose turnover has fallen during the crisis.

There are, however, some notable restrictions. First and foremost, the grant maxes out at £697.92 ($902.99) per month. Furthermore, Sunak explained that the Job Support Scheme will only support “viable jobs,” meaning the aid won’t be available for jobs that only exist because the government is still subsidizing wages.

“I can’t save every business, I can’t save every job,” said Sunak during the announcement. “What I want to be able to do is to provide as much support as possible given the constraints we operate in. We obviously can’t sustain the same level of things that we were doing at the beginning of this crisis.”

Along with this, the government also announced it would extend a cut to the VAT (value-added sales tax) rate — currently at 5% — through March 31, 2021. Also, VAT bills for businesses will be deferred and payments can be separated into smaller chunks to avoid a major credit crunch next year.

The Job Support Scheme will take the place of the current furlough scheme, set to end on October 31. Under this program, the British government has subsidized 80% of wages for millions of workers, per CNBC. According to official figures, almost three million British workers — approximately 12% of the U.K.’s workforce — are currently on full or partial leave.

It was assumed that by the end of October, government aid would no longer be necessary as the country would be far along in the process of reopening. However, earlier this week, Prime Minister Boris Johnson announced a slew of new restrictions for the country, given a steady, concerning rise in infections over the past month. The new restrictions include a 10 p.m. curfew for pubs and restaurants, a returned ban on indoor team sports, and stricter mask-usage rules. The government is also encouraging people to work from home if possible and is enforcing a “rule of six” for meetings between two households.

Though challenging for the already suffering hospitality industry, Johnson said it’s either follow these restrictions or risk another shutdown.

“I don’t want to go back to a national lockdown where the overall guidance is stay at home,” said Johnson earlier this week. “We want to keep the economy moving, we want to keep young people, pupils in education. But, the only way we can do that is if we all follow the guidance and depress the virus.”

The reactions to this new emergency aid package among the business community is mixed. The Confederation of British Industry (CBI) praised the government’s plan, with CBI director-general Dame Carolyn Fairbairn saying: “It is right to target help on jobs with a future, but can only be part-time while demand remains flat. This is how skills and jobs can be preserved to enable a fast recovery.”

However, think tank chief executive Torsten Bell, who runs the Resolution Foundation, joined many business owners in critiquing this initiative as not going far enough. The scheme on its own “will not encourage firms to cut hours rather than jobs because one-third employer contribution means it is much cheaper for firms to employ one person full-time than two people part-time.”

Bell said that if combined with the Job Retention Bonus — a £1,000 ($1,294) grant to businesses for every furloughed employee who returns to work until at least the end of January — the program could be a powerful tool to help save businesses.

About the Author

Headshot of Jemima McEvoy

Jemima is a journalist who enjoys reporting on business, particularly small business and entrepreneurship.

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