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U.K. Furlough Scheme to Support Businesses Forced to Close

Posted on Oct. 13, 2020

Businesses legally required to close their premises during the winter because of coronavirus restrictions will receive grants to cover two-thirds of furloughed employees’ salaries, U.K. Chancellor of the Exchequer Rishi Sunak announced.

HM Treasury presented the policy as an extension of the job support scheme (JSS) that Sunak announced on September 24, which is the successor to the coronavirus job retention scheme set to end on October 31. Sunak had declared that it would be wrong to hold people in jobs that “only exist inside the furlough.” The announcement coincided with official figures showing that economic growth slowed in August.

Treasury set out details of the expanded JSS, intended to run for six months starting November 1, in an October 9 release and fact sheet. The government will pay two-thirds of each furloughed employees’ salary up to a maximum of £2,100 a month. The scheme will cover “businesses that, as a result of restrictions set by one or more of the four governments in the U.K., are legally required to close their premises,” it said. Businesses required to provide only delivery and collection services from their premises will also be eligible.

“The expansion of the job support scheme will provide a safety net for businesses across the U.K. who are required to temporarily close their doors, giving them the right support at the right time,” Sunak said.

Employers will not be required to contribute toward wages but will need to pay National Insurance contributions (NICs) and pension contributions. Around half of potential claims are “likely not to incur employer NICs or auto-enrollment pension contributions and so face no employer contribution,” Treasury said.

HM Revenue & Customs intends to publish the names of employers who have used the expanded JSS. “Employees will be able to find out if their employer has claimed for them under the scheme,” Treasury added.

The government is also increasing cash grants to businesses in England that are closed in local lockdowns. The grants, to provide support with fixed costs, will be linked to ratable values. Up to £3,000 per month will be payable, with payments made every two weeks.

The Labour Party criticized the new policy, which Sunak announced ahead of the anticipated closure of hospitality premises in the north of England amid concern over rising numbers of infections and hospital admissions.

“The fact the chancellor is having to tear up his winter [economy] plan before the autumn is out demonstrates the chaos and incompetence at the heart of government. His delay in delivering support has caused unnecessary anxiety and job losses,” Labour’s Shadow Chancellor Anneliese Dodds said in a statement. “Even at this late stage, he still has no plan to support sectors that are currently unable to operate at full capacity.”

‘A Welcome Step’

“Paying two-thirds of wages for employees in lockdown is a welcome step and it is encouraging to see that the chancellor has introduced flexibility and a sector-specific approach into the JSS and recognizes that this is an evolving situation,” said Kate Nicholls, chief executive of the trade group UK Hospitality. “However, worryingly, it does nothing to address the issues faced by sector businesses operating well below capacity due to restrictions and consumers avoiding travel and struggling to keep their workforce employed.”

“It is right that the chancellor has responded to our long-standing calls for more local support, as so many areas across the U.K. now face restrictions and closures. More generous cash grants will be of some help, but for most this will not be enough to offset a sustained cash crunch,” said Adam Marshall, director general at the British Chambers of Commerce.

“As welcome as this new support will be for companies shut down by government decree, additional local restrictions and lockdowns will have a material impact on many other firms, especially in supply chains and in town and city centers. Their cash flow concerns, and worries about future demand, must be heeded,” Marshall said.

“The steep rise in infections in some areas means new restrictions to curb numbers feel unavoidable,” said Carolyn Fairbairn, director general at the Confederation of British Industry. “The chancellor’s more generous job support for those under strict restrictions should cushion the blow for the most affected and keep more people in work. But many firms, including pubs and restaurants, will still be hugely disappointed if they have to close their doors again after doing so much to keep customers and staff safe.”

"What has been announced by the chancellor today is a start but, on first look, it would not appear to have gone far enough to prevent genuine hardship, job losses, and business failure this winter," Andy Burnham, mayor of Greater Manchester, said in a joint statement with three other northern mayors.

‘Sharp Slowdown in Growth’

The Office for National Statistics announced earlier on October 9 that GDP grew by 2.1 percent in August as lockdown measures “continued to ease.” This was the fourth consecutive monthly increase, but output remained 9.2 percent below its February level. Reuters reported that August figure was less than half the median forecast in its recent poll of economists, and the slowest increase since the economy began to recover in May from a record slump.

“While the latest data confirms a rebound in economic activity continued into August, the sharp slowdown in growth indicates that the recovery may be running out of steam, with output still well below pre-crisis levels,” said Suren Thiru, head of economics at the British Chambers of Commerce. The increase in activity in August largely reflected a temporary boost from the economy reopening and government stimulus, including the “eat out to help out” scheme, he noted.

Responding to the figures, Sunak acknowledged that “many people are worried” about the coming winter months. “Throughout this crisis, my single focus has been jobs — protecting as many jobs as possible, and providing support for people to find other opportunities where this isn’t possible. This goal remains unchanged,” he said.

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