Mixed but generally positive responses to Sunak’s news of revised support package

By HAL WILLIAMS

THE UK government’s new package of measures to support businesses through to March 2021 has met with differing responses from the business world.

The measures come as winter approaches and after the introduction of further restrictions and rising Covid infection rates — and are not as generous as those introduced earlier in the year.

The furlough scheme will end on October 31, to be replaced with financial support for businesses with staff working reduced hours.

The Job Support Scheme will be available for businesses with staff working at least one third of their normal hours. The government will then top-up salaries by one third of the remaining two thirds, with another third due by the employer.

This results in employees working a third of their normal hours for 77 percent of their normal wage, with 22 percent funded by the government and 55 percent by the employer. The scheme is open to all SMEs and to larger businesses which can show a fall in turnover.

UK Government Job Support SchemeThe scheme will start on November 1 and operate for six months. Accountant and financial adviser Kreston Reeves believes the devil will be in the detail. Corporate tax partner at Kreston Reeves, Andrew Wallis, said companies must decide whether they are prepared to pay a premium for an employee to work reduced hours in order to avoid the cost of making more long-term structural redundancies.

“The scheme will only be of benefit to employers where there is a genuine expectation that the roles will be required from May 2021,” he said.

The government has to date made available some £38bn in bounce-back loans to SMEs with repayment terms of up to six years. Now, repayment terms of those loans can be extended to up to 10 years, effectively halving monthly repayments. Businesses facing particularly acute cash flow challenges can opt to repay just the interest or defer repayment altogether for up to six months.

Businesses that have taken advantage of CBILs will now, thanks to an extended government guarantee, also have up to 10 years to repay borrowing.

Bounce-back loans and CBILs applications will now remain open until the end of the year, and will be replaced with a new “successor loan scheme” from January 2021. Details of the scheme have yet to be published.

Half a million businesses have deferred £30bn of VAT payments until March 2021. Chancellor Rishi Sunak has announced that payments can be spread over 11 smaller instalments with no interest penalties. Self-assessment income taxpayers have also been given the opportunity to spread payments over a 12-month window from January 2021.

The hospitality and tourism sectors are among the most affected. The five percent VAT rate will be extended through to March 31, 2021.

Employment law specialist LexLeyton is less than optimistic about the job support scheme changes. Partner Musab Hemsi said: “Sadly, the maths simply does not support six months of sustained employment.

“Without a clearer trajectory around industry-specific and overall business and economic recovery, many businesses will be left in the dark. Unfortunately, the businesses within sectors such as hospitality, leisure and events will not be saved by these measures. Workers in industries where cashflow remains hampered or precluded by government measures are likely to lose their jobs.

“Many features of the scheme also require a great deal of clarity before it goes live. At present we do not know which companies qualify and the meaning of ‘viable jobs’ and the qualifying criteria for a ‘large employer’.”

In other sectors, flexibility is likely to be central to the success of the scheme, he says. “A great deal can happen over the course of six months, and businesses who are unable to plan ahead will need the scheme to be flexible in order to survive. The ability to access and leave the scheme, as well as businesses being able to consult on redundancies while utilising the scheme, will also be key imperatives.

“A failure to do so will put chains and businesses at risk. The government must trust business leaders to do the right thing.”

Natasha Atkinson, business restructuring partner at DWF, said the announcement reinforces the benefits of the insolvency regime becoming more debtor-friendly than the previous system — which favoured secured creditors.

“These steps, which allow further breathing space for companies to restructure their business models, are absolutely necessary to avoid a freefall of insolvencies in the new year,” she said.

“When the government moved to guarantee the Coronavirus Business Interruption Loan Scheme, it was inevitable that some leniency would have to be offered.”

But one issue not covered is that of “zombie” companies, which will continue to be propped up by credit and finance in the lending market. “This capital would be better used by companies that have a good chance of surviving the pandemic,” says Atkinson.

Peter Meyler, Head of HR analytics and consulting at Barnett Waddingham, said that, properly applied, the Job Support Scheme should help to reduce uncertainty over the furlough scheme. “On first sight, it appears to be more targeted than the ‘one size fits all’ approach of the furlough scheme — which allowed some inappropriate and fraudulent use — while racking up a momentous bill for the Treasury.

“The new support scheme needs to be aimed at and used by those sectors and businesses who need it the most. Only then will we begin to see some relief and recovery for the hardest-hit sectors, and veer away from lasting economic damage.”

Jamie Mackenzie, director of Sodexo Engage, said the news came as a relief for businesses, especially SMEs. “Although businesses will still have to share some of the costs for this, the benefits for staff are clear,” he said. “Covid-19 has left many employees feeling vulnerable and anxious, so it’s vital that employers are aware of these feelings and can act on them.

“Now more than ever, businesses need to provide their workers with reassurance, clarity and whatever support is available to help them through this difficult time.”