UK finance minister announces emergency jobs package

Chancellor of the Exchequer Rishi Sunak leaves 10 Downing Street after attending a Cabinet meeting…

Chancellor of the Exchequer Rishi Sunak leaves 10 Downing Street after attending a Cabinet meeting on 14 February, 2020.

Barcroft Media

LONDON — U.K. Finance Minister Rishi Sunak has announced a new emergency package of measures to contain unemployment, replacing the country’s furlough scheme which is due to expire next month.

The Job Support Scheme will directly top up the wages of employees working fewer hours due to suppressed business demand, enabling workers to keep their jobs on shorter hours rather than being made redundant. It will run for six months from November.

Employees must work at least one-third of their normal hours and be paid for that work as normal, but the government will increase wages covering the remaining two-thirds of the pay. The scheme will target all small and medium-sized businesses across the U.K., though larger companies may be eligible if they have experienced a fall in turnover during the crisis.

“I can’t save every business, I can’t save every job, no Chancellor (of the Exchequer) could, but what we can and must do is deal with the real problems that businesses and employees are facing now,” Sunak told the House of Commons on Thursday.

The furlough scheme has subsidized 80{a25bda0f8ab6dac90e68079d6f038584ef6ac53f1f4621de3ad526e35cd6c0d6} of wages for millions of workers furloughed as a result of the pandemic, but Sunak confirmed in July that it would be wound down as the country began to emerge from lockdown measures, instead offering businesses a bonus program for bringing furloughed employees back to work.

However, with many of those workers having been employed by the hospitality industry and the government now being forced to reintroduce some restrictions due to a spike in Covid-19 infections, economists have warned that the country could face a significant surge in unemployment in the fourth quarter.

Employers retaining furloughed staff on shorter hours can now claim both the Job Support Scheme and the Jobs Retention Bonus.

Sunak also announced an extension of the 5{a25bda0f8ab6dac90e68079d6f038584ef6ac53f1f4621de3ad526e35cd6c0d6} VAT rate (a value-added sales tax) until March 31, 2021, and pledged to defer VAT bills for businesses, along with enabling them to spread VAT bills over eleven smaller payments in order to prevent a credit crunch in March.

In addition, a “pay as you grow” scheme will enable small businesses to extend their government recovery loans for a decade, up from six years, in order to reduce monthly repayments.

Sterling edged higher on the announcements and was trading at 1.2761 against the dollar at around 2:30 p.m. London time.

More challenges to come

Earlier this week, Prime Minister Boris Johnson announced a 10 p.m. curfew for hospitality venues in a bid to contain the spread of the virus. The U.K. reported 6,178 cases on Wednesday, up by 1,252 since Tuesday and taking its total confirmed cases past 412,000.

Just last week, the Bank of England gave its first indication that negative interest rates could be under consideration as it looks to play its part in shoring up the economy against the fallout from the pandemic, with GDP having plunged by a record 20.4{a25bda0f8ab6dac90e68079d6f038584ef6ac53f1f4621de3ad526e35cd6c0d6} in the second quarter.

Karen Ward, chief EMEA market strategist at JPMorgan Asset Management, said it is too early to tell how Covid-19 will alter consumer behavior, and therefore difficult to establish whether the new program is merely delaying an inevitable reallocation of resource.

“Experience of the last few months suggests that consumers want to return to leisure facilities and travel when it is safe to do so. A viable vaccine — news of which could arrive any day — would facilitate a return to life much as we knew in 2019,” Ward said in a statement following the announcement, adding that Sunak was therefore right to ensure support remains in place for now.

She suggested that while the new measures reduce one of the key downside risks to the economy, preventing a sudden windfall of unemployment, other risks remain.

“We still don’t know whether the restrictions already announced will be sufficient to contain the spread of the virus or whether additional measures will be required. And importantly, ending the year without a sufficiently broad trade deal with the EU could lead to yet more challenges for U.K. business.”