Written by Matt Perry, Managing Partner of Haines Watts London
Chancellor Rishi Sunak has announced a raft of new measures in his Winter Economic Plan in parliament to help save jobs from a second coronavirus wave this winter.
However, the new measures really don’t go far enough and are not clearly as generous as the furlough scheme, especially for businesses that are already experiencing a reduction in revenue. It means businesses are faced with doing the right thing now versus ensuring their business is viable long term.
About the Job Support Scheme
Essentially, the Jobs Support Scheme (JSS) will be launched for employees working at least a third of their normal hours, who are being paid for that as normal. The Government and employers will jointly top-up their wages to cover two-thirds of their lost pay and the employee will keep their job.
How the JSS works
For someone who works a third of their standard hours, the Government’s contribution would be two-ninths – or approximately 22% (compared with 80% at the beginning of the furlough).
The employer would pay the first third, like normal, and another two-ninths on top. The employee would get nearly 78% of their salary. The 22% government contribution is a maximum. For someone working 50% of hours, the Government contribution is 17%. It’s a sliding scale.
The scheme for self-employed people will also be less generous than previously. It will now be worth 20% of earnings (compared to 80% at the beginning).
Is the scheme attractive enough for businesses?
The maths certainly isn’t particularly straightforward, but whichever way the Government implements it, it is going to mean extra work for payroll teams. I do think people will get used to it. After all, the maths wasn’t straightforward on the furlough scheme, but after a month of running it, it became just another calculation on a spreadsheet. After all, it’s free money for any business owner, so I’m sure they will go through the effort to get it.
Where will employers find the additional money to pay a third of salaries?
There are businesses that are almost zombie-like at the moment and just taking the furlough money to get by. I think these latest measures could now force them to close their doors. For those that are borderline, the measures still might not be enough for them to survive. There are also questions over whether a business will bring everyone back part-time or if 33% is even enough to do this. The devil will be in the detail on benefits, pension and NI payments.
I personally think we see more people doing two jobs going forward because I’m not convinced that the incentive is high enough to keep everybody employed. I also suspect business owners might potentially look to get the most out of one person, rather than bring three people back and only get a little bit of support.
Employers will not be able to make employees on JSS redundant and that is certainly a disincentive for business owners, particularly if a business is borderline, but brings all of its staff back and then trade falls off a cliff. I think many business owners would rather be more fluid in their decision making and keep their options open right now.
Will this work if the Government’s wider policy does not stimulate consumer spending or get workers back to work in areas that need footfall etc?
London is a good example of this, because as I walk around the city there are still a lot of businesses that are not open. While it has picked up in the last few weeks, the rules earlier this week on working from home were just not clear-cut. It’s again been left to business owners to decide whether staff can work from home and it’s not the logistics of it, it’s whether a business can actually afford people to work from home.
There is certainly a question mark over where the big cities will be in six to 12 months. I don’t think the Government is doing enough to stimulate the economy and I think they need to be clearer for those businesses that are Covid-19 secure.
What about sectors where trade is still challenging?
The measures do not address the situation of businesses that are not able to reopen due to local lockdowns or other circumstances, such as clubs and events businesses. It really puts an emphasis on being creative and business owners changing their business model. That’s what good business owners do.
Sunak said in his speech that businesses would have to adapt and evolve and new industries will certainly spring out of this. While they can’t bail everyone out, there is now a huge demand for warehousing facilities as more retailers move online and distribution centres are set up, creating jobs in the process.
Pay as you grow scheme
Bounce back loan payments have been extended from six to 10-year payment terms thereby reducing payments. This means that businesses can apply for interest on payments or suspend payments for six months if they are in real trouble.
The banks will certainly agree to the new payment terms on existing Bounce Bank loans and I think a change of direction for them will be fine.
What does the future hold?
This is a forever evolving situation and we are constantly monitoring what is going on. However, I do think that those strong, nimble businesses will find their way through this. I believe that business confidence will return and that’s what I’d urge the Government to look at next. I think 2021 will be a strong year because I think there is a load of money being squirrelled away by companies that are doing OK and by individuals who aren’t spending money. Once they feel confident enough to get out there, that’s when we’ll see a true flood of people back when they feel safe enough to go and spend and I believe there will be a lot of money to spend.