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Businesses Call for Additional Support as U.K. Enters Lockdown

Posted on Jan. 5, 2021

Businesses understand the need to protect public health but will be “baffled and disappointed” that Prime Minister Boris Johnson did not announce additional support alongside tough new restrictions, a business group said.

“We need to do more together” to bring the new variant of coronavirus under control while vaccines are rolled out, Johnson said in a televised address late on January 4. England will enter a national lockdown that is “tough enough to contain this variant,” he said, hours after Scotland’s First Minister Nicola Sturgeon announced that Scotland would go into lockdown. Severe restrictions remain in place in Wales, and the Northern Ireland executive was meeting late on January 4 to discuss new measures.

“The lockdowns announced in England and Scotland today are a body blow to our business communities, hard on the heels of lost trade during the festive season and uncertainty linked to the end of the Brexit transition period. Tens of thousands of firms are already in a precarious position, and now face a period of further hardship and difficulty,” Adam Marshall, director general of the British Chambers of Commerce, said in a release. (Prior coverage of Brexit.)

“Billions have already been spent helping good firms to survive this unprecedented crisis and to save jobs. These businesses must not be allowed to fail now, when the vaccine rollout provides light at the end of this long tunnel,” Marshall said. "The financial support for businesses needs to be stepped up in line with the devastating restrictions being placed on them. Otherwise, many of these firms may simply not be there to power our recovery when we emerge once again."

HM Treasury “must now bolster support for the worst affected sectors,” said Roger Barker, director of policy at the Institute of Directors. Mike Cherry, national chair of the Federation of Small Businesses, said the new lockdown “will cause widespread business failure and job loss unless support is provided on an equal scale to these unprecedented curbs on economic freedom.”

Crisis Has Exacerbated Inequalities

Separately, the Institute for Fiscal Studies (IFS) warned that U.K. tax and welfare policies must be adapted to support the self-employed, those in insecure employment, and the younger generation during the COVID-19 crisis.

The crisis has exacerbated inequalities between the high- and low-paid, and between graduates and non-graduates, and has “hit the self-employed and others in insecure and nontraditional forms of employment especially hard,” the IFS said in a January 5 report. The self-employment income support scheme (SEISS) has provided “extremely rough justice,” it argued.

“Ten years after the financial crisis, the self-employed still had median earnings below 2008 levels. They have been especially likely to lose income and hours of work through the crisis, and numbers of self-employed have fallen nearly 10 percent" during 2020, said the IFS report, published as part of the IFS Deaton Review of Inequalities and funded by the Nuffield Foundation.

COVID-19 has exposed “huge variations in how easily we are able to weather threats to livelihoods, to educational progress, [and] to physical and mental health,” according to the report, which was written by IFS Director Paul Johnson, Deputy Director Robert Joyce, and Lucinda Platt, professor of social policy at the London School of Economics.

“These disparities have been closely correlated with pre-existing inequalities between groups according to their education, income, location, and ethnicity — in ways that are often hard to disentangle, but depressingly familiar,” the authors said.

The IFS report said the generational divide seen in recent years could be exacerbated by low interest rates and quantitative easing, which could push up asset prices, strengthening the case for tax and spending measures to “lean in the opposite direction.”

The IFS cited research showing that the initial lockdown in March 2020 resulted in three-quarters of the self-employed reporting less work than usual, and the biggest reductions in working hours felt by those on the lowest incomes. Office for National Statistics figures show the number of self-employed jobs “falling by nearly 10 percent between the fourth quarter of 2019 and the third quarter of 2020,” the report said.

“The government has struggled to target support on those worst hit or to provide a comprehensive support package,” the IFS said. About 2 million people with some self-employment income, and “a substantial additional number” of people with incorporated businesses who take income in a combination of salary and dividends, are excluded from the SEISS. “This is an illustration of the difficulty the welfare state has in providing for those in nontraditional forms of employment,” it argued.

The SEISS overcompensated many by entitling them to 80 percent of previous profits irrespective of “how large a hit they took” from the pandemic, but it offered “no possibility of support at all” to around 2 million people with self-employment income who were newly self-employed, had reported profits of more than £50,000, or had self-employment income that represented less than half their total income, the IFS noted.

SEISS grants are not available to company directors, whose remuneration is taxed as employment income. While directors may be furloughed under the coronavirus job retention scheme, grants under that scheme are not paid in respect of dividends.

“Our annual review of the self-employed landscape shows that 2020 has left it pockmarked and scarred, with hundreds of thousands dropping out of self-employment and into the benefits system,” Derek Cribb, CEO of IPSE (the Association of Independent Professionals and the Self-Employed), said in a December 21 release.

Call for Long-Term Measures

The British Chambers of Commerce wrote to Johnson December 21, calling for long-term measures, including an extension of business rates relief to all businesses whose ability to generate revenues is severely impaired; “more significant” grant support; an extension of VAT deferral to at least the end of 2021; and improved access to government lending schemes.

Many workers including freelancers and entrepreneurs “have not had a penny and are really struggling” as they continue to fall through gaps in government support, Meg Hillier, chair of the House of Commons Public Accounts Committee, said in a December 20 release. Treasury and HM Revenue & Customs should investigate whether data resources across government could be used to determine eligibility for currently excluded groups, the committee said.

The Association of Chartered Certified Accountants backed a call by the Federation of Small Businesses, the ForgottenLtd campaign, and tax specialist Rebecca Seeley Harris for support to be extended to dividends. “Hundreds of thousands are suffering severe financial hardship and are at serious risk of closure. Up to 7.5 million of their employees are at risk of unemployment,” the groups said in a November 19 letter to Financial Secretary to the Treasury Jesse Norman.

Treasury is “still struggling” with the issue, Norman told the House of Lords Finance Bill Subcommittee on November 17.

‘Teetering on the Brink’

“The irresponsible decisions taken by the Conservatives over the last decade left many U.K. households without a penny in the bank going into this crisis. When COVID hit, they had nothing to fall back on — and now some are teetering on the brink of financial ruin as several COVID support cliff edges loom,” Anneliese Dodds, Labour’s shadow chancellor, said in a January 1 release. She urged Chancellor of the Exchequer Rishi Sunak to “fix Britain’s broken safety net.”

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