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New Covid-19 fiscal measures sensible in short-term, but with costly implications

By CreditMan Tuesday, September 29, 2020

The Chancellor’s latest raft of fiscal measures to support SMES and minimise job losses are a sensible short-term approach, but could have costly long-term effects for the nation, according to one of CVR Global’s leading insolvency professionals.

Rishi Sunak announced that the furlough scheme will be replaced by a new Job Support Scheme that will run from 1 November until April. This applies to SMEs, and enables them to reduce the number of hours their staff work if they experience lower demand. Employees must be working at least a third of their normal hours and be paid for that work, as normal, by their employer. The government, together with employers, will increase those people’s wages covering two-thirds of the pay they have lost through working fewer hours.

There is also welcome news for the hospitality and tourism sectors as VAT for these sectors will be frozen at five per cent beyond January and until 31 March. This will provide some relief to the hospitality and tourism sectors, which were some of the hardest hit from the Government’s recent announcement around a 10pm curfew for pubs, and conferences and exhibitions who are unable to resume from 1 October.

Businesses who deferred their VAT will also no longer have to pay a lump sum at the end of March next year. They will have the option of splitting it into smaller, interest free payments over the course of 11 months – benefitting up to half a million businesses.

Some breathing space has also been given to businesses which took out a Bounce Back Loan, thanks to the new Pay As You Grow scheme. These loans can now be extended from six to ten years, nearly halving the average monthly repayment. The Government guarantee on Coronavirus Business Interruption Loans will also be extended for up to 10 years.

There is also further support for the self-employed, as those with income tax debt of up to £30,000 will be able to set-up a payment plan over 12 months to January 2022.

Reacting to the measures, CVR Global Director Brendan Clarkson said: “This is a calculated and sensible route to replacing the current furlough scheme, as the new scheme in theory supports both viable businesses looking to battle the current climate along with a wage subsidy for employees.

“Only time will tell whether the Job Support Scheme can stave off further mass redundancies – as it all hinges on what level of demand businesses will experience through the winter months.

“As much as this will be deemed in parts a huge support to the nation, I wonder when the pennies will run out and how the UK economy will recover, and in the long-term how will the Government and banks recoup the revenues that were not there in the first place?”

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