Chancellor, Rishi Sunak has outlined additional government support to provide certainty to businesses and workers impacted by coronavirus across the UK.
Delivering a speech in Parliament, the Chancellor announced a package of measures that will continue to protect jobs and help businesses through the uncertain months ahead as we continue to tackle the spread of the virus. The package includes a new Jobs Support Scheme to protect millions of returning workers, extending the Self Employment Income Support Scheme and 15% VAT cut for the hospitality and tourism sectors, and help for businesses in repaying government-backed loans.
The announcement comes after the Prime Minster set out further measures to combat the spread of the virus over the winter, while preserving the ability to grow the economy.
Responding to the Chancellor Rishi Sunak’s speech concerning his Winter Economic Plan, Federation of Small Businesses (FSB) National Chairman Mike Cherry, said “There are many measures to welcome here that will make a real difference. It’s particularly encouraging to see that all small businesses will be able to access the new job support scheme without facing excessive paperwork, with a guarantee of help for the next six months.”
“News of the ‘Pay as You Grow’ approach will mean relief for hundreds of thousands of firms, giving them the confidence to invest and hire today rather than tomorrow, providing a crucial option to suspend repayments for six months. We called for an extension to the deadline for emergency finance facilities and that extension has rightly been delivered today. The assurance on credit ratings will be hugely welcomed by many worried small business owners.”
“On the tax side, the greater space being promised on deferrals and the maintenance of the 5% VAT rate for hard hit sectors are much needed, promising to shore-up demand for firms that are especially struggling. The extended deadlines for deferrals of VAT and self-assessment tax bills will help avoid cliff-edges in the future.”
“We look forward to more details on the successor to the self-employment income support scheme. It’s right to provide support to the self-employed equivalent to that offered to employees, and the scheme should be opened up to those excluded from the first round of support measures.”
“We are concerned that the Chancellor had nothing to say today on support for those who were left out of the first round of support measures, not least the newly self-employed and company directors. The Government urgently needs to come forward with an emergency relief package for these groups which have dutifully paid their taxes and deserve help too.
“Equally, local lockdown grants in all four nations should now be extended to firms forced to closed that were counting on reopening in the coming weeks but now face the most difficult of winters. Today’s statement is a very welcome and significant step forward, but there must be more to come.”
Meanwhile, Stephen Haddrill, Director General of the FLA, said “It’s good to see that the Chancellor has accepted our recommendation to extend CBILS, and we look forward to seeing what the successor scheme for 2021 will look like. We have already proposed a revised version of the Enterprise Finance Guarantee Scheme.”
“What hasn’t been addressed in today’s announcement, and what continues to be a challenge for our independent lenders, is access to funding that can then be deployed under the guarantee schemes. Our members are ready and willing to support SMEs, but they can’t do that without funds.”
Stephen Pegge, Managing Director of Commercial Finance at UK Finance, said “The banking and finance industry is providing unparalleled levels of support to businesses large and small to get them through these challenging times. Over 1.3 million businesses have so far received finance through the government-backed loan schemes, and lenders welcome the extension for applications to provide better co-ordination of end dates and allow time to consider what ongoing support is then required.”
“These schemes are just one part of a broad package of measures from the industry, alongside commercial lending, capital repayment holidays, extended overdrafts and invoice finance facilities. UK Finance and its members will continue work with the government and other groups to ensure businesses are able to access the finance they need.”
Markus Kuger, Chief Economist at data and analytics firm, Dun & Bradstreet said“Despite the 6.6% real GDP growth in July, the British economy is still almost 12% smaller than in February and our latest analysis suggests that this recovery is likely to be short-term due to a combination of more COVID-19 cases, the re-introduction of some lockdown restrictions, increased Brexit-related headwinds and rising unemployment as the government’s furlough scheme comes to an end. Dun & Bradstreet is maintaining our current real GDP growth forecast of -10% for the year as a whole and our country risk rating for the UK remains at an all-time low with a ‘deteriorating’ outlook.”
“The new Job Support Scheme is in line with the approach of other European economies (such as France and Germany). On the upside, it will continue to artificially supress unemployment (which will be positive for domestic demand) while on the downside, create additional fiscal pressures and could also mask wider issues within some sectors that need to be addressed for long-term, sustainable economic recovery.”
“It continues to be a challenging time for many businesses across the UK and our latest trade payment performance data shows a concerning decrease in the number of business to business payments being paid on time. On-time payments have declined from an average of 47.2% in March 2020 to 40.7% in August.”
Jonathan Geldart, Director General of the Institute of Directors (IOD) said “These new measures should bring some relief to many directors fearing a harsh winter for their businesses and people. As the virus wears on, the Treasury is right to seek a balance between protection and adjustment. However, at first blush it’s not yet clear how much the Job Support Scheme will help hard-pressed firms hold onto staff. The Chancellor may also have missed a trick by not combining the Scheme with measures to encourage wider job creation, for instance by lowering employment costs through reduced Employers’ NICs.”
“The measures around loan schemes and tax deferrals will reassure swathes of companies. The new payment plans go some way to defusing a rapidly-approaching tripwire of built-up debt. Extending the loan schemes marks another sensible precaution. With revenues still limited by the virus, directors looking to adapt their organisations will come up against cash crunches in waves. That these changes come alongside an extension to emergency insolvency measures, which the IoD has led calls for, will be a double boost for struggling companies.”
“Some important gaps in the support still remain. Crucially, many self-employed and small company directors continue to go without support, even as other schemes are continued. Meanwhile, with business investment in the doldrums, the Treasury must act to provide reliefs for firms to spend on digital technology and skills, particularly as SMEs look to adapt to home-working. The Government should also remain open to widening access to its loan schemes, and ensuring local authorities have the funding to provide grant support to firms that have been shut out of other channels.”
“Business leaders will hope the Chancellor is ready to return to the crease soon to address these challenges and more, not least the rapidly approaching end of Brexit transition.”
Commenting on the Rishi Sunak cancelling VAT increase for the hospitality and tourism sectors, Glyn Woodhouse, VAT Partner at BDO said “We welcome the extension to the lower rate of VAT for the tourism and hospitality services (which was due to end in January 2021) until the end of March 2021 and also the ability to spread the payment of the VAT that was deferred between March to June 2020. These measures are extremely helpful for business and help prevent the “cliff edge” that had previously been created. However, January to March are relatively quiet months for the tourist and hospitality sector and many businesses in that sector will have been hoping that this could have been continued through the summer.”
Commenting that the application deadlines for the four Covid-19 business relief schemes will be extended and the period for repayment increased, Gregory Taylor, Head of Financial Solutions at MHA MacIntyre Hudson says the Chancellor has failed to address the fact that lending is still too restrictive he said “The Chancellor’s largesse today is fine as it stands but still fails to address the long-standing flaw with the Covid-19 loan schemes. Of the four Covid-19 loan schemes (CBILS, CLBILS, BBLS, & The Future Fund) only the Bounce Back scheme (BBLS) is particularly effective at getting help to where it is needed. For the other schemes lending practices are too restrictive, and even good companies with solid growth prospects can’t get a look in.”
“Across all schemes the overall approval rate is 63%, but this number is skewed by the Bounce Back scheme, which is running at an 82% approval rate. The Bounce Back scheme however only provides loans of up to £50,000 and the more substantial CBILS scheme, which larger SMEs desperately need access to, has a much lower approval rate of 49%.”
“One of the best moves government could make to increase approval rates would be to allow banks to make loans at 4 times a company’s EBITDA. This is the tolerance non-bank lenders employ, and would allow many more businesses to benefit. Banks are currently only making loans up to a value of 1.7 times EBITDA, so many businesses are missing out on the support they need.”
“The Chancellor’s new plan also poses a few questions businesses may be wondering about. Businesses can apply for a six-month freeze on loan repayments but who gets to decide whether this is allowed, the lender or the British Business Bank? Finally, although the Chancellor has permitted businesses to extend the period over which a loan can be repaid to 10 years, we need clarity as to whether this applies to existing loans or just to those taken out after this announcement.”
Josh Levy, CEO of Ultimate Finance, said “The Chancellor has today recognised again that the big challenge for businesses amongst ongoing economic uncertainty is their cash flow. As such, today’s announcement is welcome, with a range of measures including a new wage subsidy scheme, an extension of business interruption loan schemes including CBILS, the ability to spread deferred VAT over 12 months and a continued VAT cut for hospitality businesses.”
“Whilst the devil will be in the detail and it’s unclear whether this goes far enough in terms of targeted support for the most impacted sectors, it does nonetheless feel like a positive step in smoothing the various cliff-edges for SMEs that were so obviously looming.”
“Non-bank lenders have a critical role to play in funding SMEs through this crisis and enabling the return to growth. As a CBILS accredited lender we’re pleased that businesses will have the opportunity to continue accessing funding under these schemes until the end of the year with plans for a replacement scheme in 2021. In addition to CBILS, our range of asset-based lending options including Invoice Finance and Asset Finance can be brilliant tools for assisting cashflow and working capital during all stages of a business’ recovery.”