Sunak sets out multibillion-pound rescue package but accepts jobs will go
A multibillion-pound package of support for the economy may not be enough to prevent rising unemployment and businesses going to the wall, Chancellor Rishi Sunak admitted.
The resurgence of coronavirus poses a threat to the UK’s “fragile” economic recovery, the Chancellor said as he confirmed plans for the state to top up the wages of workers forced to cut their hours due to the pandemic.
The Job Support Scheme was aimed at protecting “viable” roles once the furlough scheme comes to an end, with Mr Sunak arguing it would be “fundamentally wrong” for people to be kept in jobs that can only exist due to state funding.
Other measures included in the package include an extension of the VAT cut for tourism and hospitality and more flexible terms for the repayment of Government-backed loans.
City analysts Capital Economics put the cost of the announcements at around £5 billion.
The Job Support Scheme, which will last for six months from November, will see the state and employers top up the wages of staff working at least a third of their normal hours, with companies which did not take part in the furlough scheme also allowed to apply.
Under the scheme, a worker doing a third of their normal hours will still receive 77% of their usual pay, up to a cap – 33% from their firm for the hours worked, a 22% top-up from the employer and a further 22% from the state.
It will cost the Treasury an estimated £300 million a month for every million workers who take up the scheme – with Government contributions per worker limited to £697.92 per month.
By comparison, the furlough scheme which expires on October 31 has cost the Government £39.3 billion – about £6 billion a month.
The scheme will be targeted at small and medium-sized firms with fewer than 250 employees – larger companies will only be eligible if they can show their turnover has been hit as a result of coronavirus.
The Institute for Fiscal Studies (IFS) think tank warned the new Job Support Scheme was “significantly less generous” and will translate into “sharply rising unemployment”, as jobs which relied on state funding will cease to exist.
“I can’t promise that everyone can go back to the job that they used to have,” Mr Sunak said.
The Chancellor also extended the self-employment income support scheme and suggested a similar grant will be introduced, although a trade body warned more than a million could miss out on the measures.
Business loans, including the bounce back and Coronavirus Business Interruption Loan Scheme (Cbils) have been extended, with new plans due in January, and firms will have up to 10 years to pay off the debt.
About £15.45 billion has been lent under Cbils and almost 1.3 million companies have borrowed more than £38 billion through bounce back – with the taxpayer footing the vast majority of the bill for any defaults.
The struggling hospitality and tourism sector saw a cut in VAT from 20% to 5% for food, non-alcoholic drinks and accommodation extended beyond the original January 12 deadline until the end of March, at an extra cost of around £800 million.
The Chancellor said it will help to “support over 150,000 businesses and protect 2.4 million jobs”.
Mr Sunak delivered his plans in the House of Commons, but Prime Minister Boris Johnson was not there to support him as he was visiting police recruits in Northamptonshire.
Downing Street denied speculation about a rift at the top of Government, insisting there was “absolutely not” a problem between Mr Johnson and Mr Sunak.
The Chancellor told MPs: “The resurgence of the virus, and the measures we need to take in response, pose a threat to our fragile economic recovery.”
And he acknowledged “we can’t save every business” and “we can’t save every job”.
The Chancellor said that while in March it was hoped there would be a “temporary period of disruption” to the economy as a result of the virus, it now appeared there would be a “more permanent adjustment”.
“The sources of our economic growth and the kinds of jobs we create will have to adapt to the new normal,” he said.
At a Downing Street press conference, Mr Sunak indicated he would be prepared to fund extra measures if they were required.
“If you’re asking me if I’m ready to do more as the situation evolves, of course I am,” he said.
But he acknowledged there would have to be “difficult” decisions in order to repair the public finances as the economy recovered.
Shadow chancellor Anneliese Dodds said the package of measures “comes too late for many people who have already lost their jobs”.
CBI director-general Dame Carolyn Fairbairn welcomed the “bold steps” from the Treasury and said: “Wage support, tax deferrals and help for the self-employed will reduce the scarring effect of unnecessary job losses as the UK tackles the virus.”
But she added: “Further business rates relief should remain on the table.”
Julian Bird, chief executive of UK Theatre, said the Chancellor’s announcement did little to help the performing arts sector, where the majority of venues and productions remain closed due to Covid-19.
“Our previously viable and world-beating sector is facing decimation as with no income, organisations cannot bring their staff back to work,” he said.