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U.K. Chancellor Unveils ‘Unprecedented’ Economic Relief Package

Posted on Mar. 23, 2020

U.K. Chancellor of the Exchequer Rishi Sunak has announced “unprecedented” measures to support coronavirus-hit businesses, including reimbursement of 80 percent of absent workers’ wages and a three-month deferment of businesses’ quarterly VAT payments.

Calling them “unprecedented measures for unprecedented times,” Sunak, in a March 20 address, said his package includes VAT and income tax deferrals, the extension of universal credit and interest-free government-backed loans, and grants. Also, “for the first time in history,” he said, the British government will pay workers four-fifths of their wage, up to £2,500 per month, if they miss work because of COVID-19 shutdowns. However, businesses will need to designate these workers as furloughed to notify HM Revenue & Customs to pay them under the Coronavirus Job Retention Scheme.

Sunak said employers could top up the payments as they deem fit, and that the payments would be backdated to March 1. He added that the scheme would be available for three months but would be extended if necessary, and no limit would be placed on the amount of funding available. He confirmed that every employee under the Pay As You Earn scheme would be covered, but said he couldn’t “generalize for every person’s employment status.” He said the new policies are intended to have as wide an impact throughout the economy as possible.

“We have never had a scheme in our country like [the Coronavirus Job Retention Scheme] before – and we’re having to build our systems from scratch. I can assure you that HMRC are working night and day to get the scheme up and running,” Sunak said, adding that businesses can expect the first grants to be paid within weeks. “We’re aiming to get it done before the end of April,” he said.

Sunak said a major advertising campaign will be launched to communicate the available government assistance, and he implored businesses to look at the support available before laying off employees. “I cannot promise you that no one will face hardship in the weeks ahead,” he said. “The truth is we are already seeing job losses. And there may be more to come, [but] the government is doing its best to stand behind you — and I am asking you to do your best, to stand behind our workers.”

Sunak said that under his plan, businesses won’t pay any VAT until the end of June and will have until the end of the financial year to repay those bills — “a direct injection of £30 billion of cash to employers, equivalent to 1.5 percent of GDP.”

Sunak also announced that the income tax payments of the self-employed — normally due July 31, 2020, under self-assessment — will be automatically deferred until January 31, 2021, and no penalties or interest for late income tax payment will be charged in the deferral period. Further, small businesses will be given grant funding of £10,000 for all businesses receiving small business rate relief or rural rate relief, in addition to the 12-month business rates holiday for all retail, hospitality, and leisure businesses in England previously announced.

Also, the interest-free period of the Coronavirus Business Interruption Loan Scheme has been extended from six months to 12 months. Cash grants of £25,000 will be available for small business properties in addition to the 12-month business rates holiday already announced for the hospitality, retail, and leisure industries.

To “strengthen the safety net for self-employed people too,” Sunak said every self-employed person can now access the full universal credit at a rate equivalent to statutory sick pay for employees (£94 a week) because the minimum income floor will be suspended. Also, over the next 12 months, the universal credit standard allowance and the working tax credit basic element will be increased by £1,000 a year.

Responding to criticisms, particularly from the Labour Party, that his initial package did not help renters, Sunak said he would provide “nearly £1 billion of support for renters, by increasing the generosity of housing benefit and universal credit” so that the local housing allowance will cover at least 30 percent of market rents in the area a renter lives in.

When asked how the government will fund the new package, Sunak said it would be financed “through the government’s normal debt management operations” and confirmed that the U.K.’s Debt Management Office and the Bank of England were “coordinating closely over the gilt markets.” He also said that business rates relief will benefit charities, many of which have seen their income fall by 40 percent, and added that they are covered by the new relief package.

While some seemed impressed by the chancellor’s new economic measures — Michael Izza, CEO of the Institute of Chartered Accountants of England and Wales, called it “a really good start” — not everyone was so positive. Labour Party leader Jeremy Corbyn had released his party’s proposals “to secure wages, welfare, and wellbeing” on March 19, calling on the government to guarantee wages so that no workers or the self-employed lose their jobs, increase statutory sick pay to a rate one can live on, raise benefit levels, and “ensure no business is left to fail.” After Sunak’s speech, Shadow Chancellor John McDonnell said he welcomed the chancellor’s “shift in direction” from earlier in the week, but that “unfortunately, it’s not far enough or fast enough.”

“[Sunak] said, ‘whatever it takes,’ but this isn’t whatever it takes,” McDonnell said March 20. “I’m worried about another delay in getting these benefits to people, getting the wages in people’s pockets. . . . I’m hoping that over the next few days we’ll be able to improve upon that when he comes to Parliament on Monday.”

Ed Davey, acting leader of the Liberal Democrat Party, said that while the package is welcome there are still concerns that the relief will miss some who need it. “We are worried that too little is being done for the self-employed, for those on zero hours’ contracts, or for those on statutory sick pay and benefits. This would send a strong signal that we care for everyone in our society,” he said, as quoted by BBC News.

Nonfinancial measures being taken to combat the coronavirus include the closure of all cafés, bars, pubs, and restaurants across the United Kingdom from the night of March 20, to be reviewed month by month. However, legislation will be changed so they can provide take-away services. Many of these businesses had already been forced to close due to lack of customers. Prime Minister Boris Johnson also announced that gyms and leisure centers were to close from the same night, as would nightclubs, theaters, and cinemas — although many London theaters had already closed due to lack of business.

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