In order to alleviate at least some of the negative economic impacts of the coronavirus pandemic, governments and central banks around the world have adopted new policies.
In the UK, the government and the Bank of England have announced a range of measures to benefit companies and staff, their purpose being to keep companies solvent to hire as many people as possible. These initiatives aim to help companies, staff and the general public financially during the outbreak, as well as try to minimise economic uncertainty.
The British economy continued to pick up in June, climbing by 8.7% from May, as construction activity resumed and consumer spending rebounded, a monthly breakdown showed. Even so, last week, the Bank of England said it did not expect the recovery to be complete until the end of 2021.
- Immediate fiscal impulse (£183.8 billion) and other liquidity and guarantee measures (£340.3 billion) were some of the first UK economic polices, as follows:
- Funding of £53 for the Coronavirus Job Retention Scheme initiative
- Additional funding of £31.9 billion for the NHS: including £15 billion for PPE, £10 billion for the government’s Test, Locate, Contain and Activate programme, £1 billion for the purchase of additional ventilators, an additional £5.5 billion for healthcare, including the use of independent health facilities
- Funding of £16.5 billion for small business grants
- A 12-month business rates holiday for all retail, catering, leisure and hospitality firms amounting to £11.8 billion
- Funding of £10.4 billion for increases in public financing spending for non-NHS services
- Funding of £6.1 billion for the Job Retention Bonus: UK employers can receive a one-off taxable payment of £1,000 for each furloughed employee who was still working until 31 January 2021
- Funding of £4 billion in capital investment for shovel-ready building projects brought forward to 2020/2021
- Funding of £3.5 billion to ensure the continued running of rail services
- Funding of £2.5 billion for VAT reductions for food, non-alcoholic beverages, and accommodation from 20% to 5%. It should be remembered that the scheme was originally scheduled to expire in January 2021, but was extended until 31 March 2021 on 24 September 2020.
- Capital investment of £ 2 billion for the Green Homes Grant for 2020/2021, allowing homeowners and landlords to make their homes more energy efficient
- Long-term plans during the pandemic by the UK government and institutions
Unlike Germany, where the economy is more dependent on production, the UK recovery requires customers to feel secure enough to venture out, buy and invest in businesses. The UK government is urging people to return to work to prevent the recovery from stalling, and it is arranging for schools to reopen. So the next British policy is to guarantee positions for the next generation of workers.
- The Job Retention Scheme (JRS) (applied in England, Northern Ireland, Scotland and Wales): The JRS has been implemented to support employers who are unable to retain their current employees as the Coronavirus pandemic impacts their operations.
- Eligible employers should apply to HMRC for a grant for the employment costs of eligible persons who are working reduced part-time hours due to the outbreak, or who consent to be ‘furloughed’.
- Until 31 January, employers will be expected to pay only the National Insurance and Workplace Pension Payments for the hours an employee does not work.
Scheme for Apprentice and Traineeship (applied in England only)
- Any firm hiring a new apprentice aged 16-24 will receive £2,000 from August 2020 to January 2021, and any firm hiring a new apprentice aged 25 or over will receive £1,500.
- This payment will be in addition to the current £1,000 incentive already offered by the UK government for new 16-18 year old apprentices.
- For each new traineeship placement that they make, businesses will receive £1,000, with the UK government offering ample support for about 30,000 new positions.
Statutory Sick Pay (SSP) Refunds for Smaller Corporations
- On 28 February 2020, companies with less than 250 workers in their community may receive a refund from the UK government for SSPs paid for up to 2 weeks’ absence due to coronavirus.
- This also involves absence due to self-isolation in accordance with the public health advice.
- From the first day of absence, employees are entitled to SSP due to the coronavirus pandemic.
- Employers can reclaim all Covid-19 related SSP from the HMRC online.
Coronavirus Business Interruption Loan Scheme (for companies with a turnover of up to £45 million)
- Under the Coronavirus Business Interruption Loan Scheme (CBILS), UK companies with an annual turnover of not more than £45 million may borrow up to £5 million interest-free for 12 months under a British Business Bank (BBB) scheme where the UK government offers a guarantee to the lender for 80% of each loan and covers the cost of the first 12 months of interest.
- Funding can be given under CBILS for up to 6 years via term loans, overdrafts, invoice finance and asset finance.
- The £45 million turnover threshold applies to company turnover rather than to the turnover amount of individual businesses.
Coronavirus Large Business Interruption Loan Scheme (for companies with a turnover of more than £45m)
- The Chancellor announced the new Coronavirus Large Business Interruption Loan Scheme (CLBILS) on 3 April 2020. This includes an 80% UK government guarantee to encourage banks to make loans of up to £25 million to companies with an annual turnover of between £45 million and £250 million, similar to the SME CBILS scheme. Firms with a turnover of more than £250 million can now borrow up to £50 million under the scheme.
- CLBILS is a temporary support measure by the government for banks to lend money to larger companies which are affected by the pandemic that they could not have burrowed otherwise. Companies with a turnover of more than £250 million can borrow up to £50 million from lenders.
Bank of England Covid Corporate Finance Facility (CCFF)
- The CCFF was launched to provide large corporations with financing through the purchase of short-term corporate debt in the form of commercial paper. Guidance on the facility has been published by the Bank of England, including eligibility information and how to apply.
- Funding is available to businesses 1) which make a ‘material contribution to the British economy’, 2) are able to show that they were in good financial health prior to the pandemic and 3) have a credit rating of a short or long term investment grade, or are otherwise able to demonstrate financial strength equal to an investment grade.
- The CCFF started on 23 March 2020 and the Bank of England data issued on 2 April 2020 revealed that £1.9 billion of commercial paper has already been purchased under this facility and a further £1.6 billion has been committed to under the HM Treasury update on 3 April 2020.
Funding of £750m for Frontline Charities
- The UK government has announced £750 million in funding for frontline organisations in the UK, including support for hospices and victims of domestic violence. Scotland, Wales and Northern Ireland will receive £60m.
- UK government agencies will directly contribute £360 million to organisations delivering key services and helping disadvantaged people throughout the economic crisis, including hospices and victims of domestic violence. Also, £370m will go to small and medium-sized charities, including a grant by the National Lottery Community Fund for those in the UK.
- One of the most important policies in the UK is to provide SMEs access to loans, overdrafts, invoice financing and asset finance for up to £5 million for six years through the Coronavirus Business Interruption Loan Scheme. The UK provides loans, but this does not include venture-backed start-ups.
Self-Employment Income Support Scheme
- Two rounds of grants have been given to self-employed individuals.
- In the first round of grants, self-employed individuals adversely affected by the pandemic received a taxable grant worth 80% of their average monthly earnings for the past three years, up to £7,500 in total, spanning three months.
- For both grants, the eligibility requirements specified that individuals must have trading profits not exceeding £50,000, making up at least half of their overall income.
- Anyone whose self-employed company has been adversely affected by the coronavirus pandemic since 14 July is liable for the scheme, and documents should be kept to illustrate how the company has been affected.
Supporting Jobs and SMEs
Job protection and support for SMEs is a main UK economic policy during the pandemic crisis.
- The Self-Employed Income Support Scheme (SEISS) will be extended by the UK government for a further six months, from November 2020 to April 2021.
- The extension will take the form of two grants which will be taxable. The first grant will cover a period of three months, from the beginning of November to the end of January. This initial grant will cover 40% of the average monthly trading earnings, paid out in a single installment covering 3 months’ worth of income, capped at a total of £ 3,750. The second grant will cover a period of three months from the beginning of November to the end of April. The amount of the second grant will be reviewed by the UK government and set in due course.
- The grant will be limited to self-employed people who are currently eligible for the SEISS and continue to trade actively, but face decreased demand due to the pandemic.
- The UK government offers companies borrowing under the Bounce Back Loan Scheme the option of repaying their loans for up to 10 years, thus lowering monthly payments.
Companies will also have the option of switching to interest-only payments for periods of up to six months, or pausing their repayments fully for up to six months.