Chancellor of the Exchequer Rishi Sunak’s budget will extend the U.K.’s coronavirus job retention scheme (CJRS) until the end of September and widen the scope of the self-employment income support scheme (SEISS), HM Treasury announced.
“Our COVID support schemes have been a lifeline to millions, protecting jobs and incomes across the U.K. There’s now light at the end of the tunnel with a roadmap for reopening, so it’s only right that we continue to help business and individuals through the challenging months ahead — and beyond,” Sunak said in a release late on March 2. He will deliver the budget on March 3.
There will be no change to the terms of the CJRS for furloughed employees, who will continue to receive 80 percent of their salaries for hours not worked, Treasury said. “As restrictions are eased and the economy begins to reopen, businesses will be asked to contribute alongside the taxpayer to the cost of paying their employees for hours not worked,” it added.
Details of the fourth and fifth SEISS grants will be set out in the budget, Treasury said. The scheme will be extended to cover more of the newly self-employed.
When the SEISS was launched, entitlement was based on tax returns for 2018-2019, the most recent year for which data were available. Now that 2019-2020 data are available, more than 600,000 people will become eligible, Treasury said.
“Quite simply, extending the [CJRS] will keep millions more in work and give businesses the chance to catch their breath as we carefully exit lockdown,” said Rain Newton-Smith, chief economist at the Confederation of British Industry, according to a Treasury release.
“As we make progress into the summer, it’s right that businesses start contributing a little more as revenues start to recover. Meanwhile it’s great to see more support for the newly self-employed, who have missed out over the last year,” Newton-Smith added.
Earlier on March 2 Business Secretary Kwasi Kwarteng appeared to confirm the extension of the furlough scheme in a BBC Breakfast interview. “I think the chancellor has already indicated that we will be extending furlough,” he said. Sunak had hinted in weekend television interviews that further support would be provided, but there had been no formal announcement.
Writing in The Times earlier on March 2, Paul Johnson, director of the Institute for Fiscal Studies, suggested that the support schemes should not remain in place for too long. “If people are supported in jobs that are effectively defunct, that will slow down the adjustment and recovery to come,” he said.
Sunak should “act urgently to fix the gaps [in the SEISS] that have seen millions excluded altogether since the crisis began,” Labour’s Shadow Chancellor Anneliese Dodds said in a March 1 speech to Bloomberg in London.
Restart Grants
Sunak is also set to announce a new £5 billion scheme of grants for retail and hospitality businesses, worth up to £18,000 per firm, replacing a monthly grant system. “Nearly 700,000 shops, restaurants, hotels, hair salons, gyms, and other businesses in England will be eligible for the so-called 'restart grants,' to be distributed directly to firms by local authorities from April,” BBC News reported on February 28.
The Financial Times quoted Sunak as saying, “Our local businesses have been hit hard by the pandemic. . . . There’s now light at the end of the tunnel, and this £5 billion of extra cash grants will ensure businesses on our high street can open their doors with optimism.”
Mike Cherry, national chair of the Federation of Small Businesses, said the restart grants would “provide a much-needed lifeline, offering firms some reassurance as we look to put lockdowns behind us and focus on a vaccine-fueled recovery.”
Tax Increases
The budget will be “a test of character” for Sunak, and the choices he makes will be critical in determining what kind of economy will emerge from the coronavirus crisis, Dodds said.
“From the IMF and the World Bank to the OECD, every major international economic organization [agrees that] now is not the time for tax rises on struggling businesses or families," Dodds argued.
“In private, it seems Rishi Sunak is clear about his rationale for this: to get tax rises out of the way now, well ahead of the next election,” Dodds said. “In public, the chancellor might couch his decisions in the language of fiscal responsibility, but that’s hard to take from a government that has wasted and mismanaged billions over the course of this last year.”
Labour has criticized the U.K. government’s handling of the pandemic. Dodds spoke of “a year of last-minute scrambles, U-turns, waste, and mismanagement.”
In his article for The Times, Johnson said the burden of repaying debt accumulated during the coronavirus crisis “can be shared reasonably across many generations.” But taxes will have to rise eventually, and “possibly by a lot,” in the event of higher public spending and an economy that “turns out to be smaller in the long run than we had expected,” he said.
“Any rise in corporation tax would . . . do severe damage to the many freelancers who work through limited companies. Above all, it would be deeply unjust to raise taxes on the self-employed to pay for support that at least a third of the sector simply could not access,” said Andy Chamberlain, director of policy at IPSE, the Association of Independent Professionals and the Self-Employed.
IPSE had called for a further delay in changes, set to take effect in April, to the IR35 regime. “These changes were delayed last year because government recognized the sector was not prepared for them and that, with the impact of the pandemic, they would harm the self-employed and the economy. The situation is no better now: and, in fact, now would be the worst possible time to introduce these changes,” Chamberlain said.