Economic view: relief over new Covid-19 support may be short-lived

Chancellor Rishi Sunak has unveiled revised support for businesses affected by Covid-19. Accountants provide their thoughts on its measures and potential impacts.

Amid controversy over the business effects of the UK’s Covid-19 tiered restrictions, Chancellor Rishi Sunak announced out a new package of emergency business support – including the Job Support Scheme Open –  on 22 October.

The package is tailored to the tiered system of lockdowns, including:

• Local authorities will provide cash grants of up to £2,100 per month to firms in Tier 2 areas, covering all affected hospitality, accommodation and leisure premises.
• The government will backdate the grants to August.
• The employer contribution to unworked hours under the Job Support Scheme Open is reduced from 33% to 5%. The package also reduces the minimum-hours requirements to 20%, – see our 37 point comprehensive guide for further details.

Accountants react to the Chancellor’s announcement and explore what its measures will mean to clients.

The new package provides much-needed clarity

Caroline Harwood, Employment Tax Partner, Crowe UK

Many firms had voiced concerns over inconsistencies in the government’s previous measures. Businesses legally required to close in Tier three areas were benefitting from the expanded Job Support Scheme. Meanwhile, those in Tier two areas were suffering significantly from reduced footfall and limited support from the original scheme. In many cases, that would not have enabled firms to keep staff in jobs.

The new grants and revised Job Support Scheme, which offers government funding of up to 62% of wage cost with the employer paying just 5%, will not match the level of income that many firms had enjoyed before the start of the pandemic. However, these measures will provide vital funding, enabling many to keep staff in jobs throughout the second wave.

Business communities who’d faced the stark reality of being unable to pay staff – even at a reduced level of work, and despite help from the original Job Support Scheme – now have some breathing space in the coming months.

Verdict: The new support package is broadly a workable companion to the tier rules and may help settle businesses’ nerves.

But is it an adequate substitute for furlough?

Natasha Frangos, Partner and Head of Corporate at haysmacintyre

As local coronavirus restrictions up and down the country start to tighten, there has been a significant concern across sectors over the financial support available to businesses. As new regions continue to enter into Tier two and Tier three restrictions, the Chancellor’s change of tack with the Job Support Scheme will have undoubtedly put some minds at ease.

However, while substantially reducing the employer contribution to employees’ unworked hours and offering grants to impacted firms will have come as a welcome relief, there are concerns that the measures still leave many companies in the dust, struggling to cope.

Furlough had provided many firms with a lifeline in the depths of lockdown. But with businesses receiving less support from the new scheme and facing ongoing uncertainties over future trade restrictions, we may still see a flurry of job losses as reduced footfall and increased costs continue to hit the high street hard.

We can recommend the new package to many clients

Neil Driver, director, Davis Grant

Thanks to a) the welcome improvement to the government’s contribution to the Job Support Scheme, and b) the reduction in employer contributions, we are now able to advise a significant proportion of our clients that the government support may be useful to them. Previously, we felt it was not.

However, I should note that a large proportion of our owner-managed SMEs – those taking a minimal salary and drawing income via dividends – are still in a challenging situation in terms of obtaining government support.

The furlough scheme sparked an unprecedented demand for the services of our payroll team to administer claims. With these changes, it seems their work is not over, and will instead turn to the impacts of the new scheme.

Timely help, but redundancies are still likely

Robert Bean, managing partner, Grunberg & Co and Reanda UK

The Chancellor’s decision to extend financial support measures couldn’t have come at a more critical time – especially for the sectors hardest hit by restrictions. While this new package may not, sadly, save every job or business, it will help those that were viable pre-pandemic to hold out longer, in the hope that restrictions can gradually be lifted. They can resume something like normal trading.

Changes to the Job Support Scheme will be critical once furlough ends – but even so, some firms may still have little choice but to make redundancies. It is down to businesses and their advisers to explore other options that can help them not only survive but hopefully thrive. As accountants, we have a vital role to play in helping the UK business community recover in the coming weeks, months and years.

Verdict: The spectre of large-scale redundancies has not gone away, and accountants will need to work closely with clients to develop contingencies.

Will surviving businesses face higher taxes?

Rob Chedzoy, tax partner, Milsted Langdon

The introduction of the new tiered system of alerts forced the Chancellor’s hand, here. His new measures have somewhat shifted costs away from businesses and back towards the government, which many companies will welcome – especially the expanded business grants scheme and the reduction in employer contributions under the Job Support Scheme.

However, one question looms large on the horizon: how does the government intend to cover these costs and pay off the growing national debt? Unfortunately, we must now await the next Budget – whenever that may be – to find out how much of a burden is placed back on businesses and their owners in the form of new taxes or cuts to reliefs.

Verdict: Accountants must have one eye on helping clients prepare for the government’s long-term fiscal response, as well as addressing more fluid, near-term issues.

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.