This Bulletin covers the Chancellor of the Exchequer’s UK economic update delivered on 22nd October 2020, including additional help for businesses and self-employed people.
Although it is only just over three weeks since the Chancellor announced a number of state funded schemes and interventions to support businesses and individuals who have been adversely affected economically as a result of the Coronavirus pandemic – most notably the new Job Support Scheme (JSS) – the deteriorating Covid-19 situation has prompted him to introduce additional support measures.
At the time of the announcement in late September of the JSS – designed to replace the Coronavirus Job Retention Scheme (CJRS) or ‘Furlough Scheme’ – the Government hoped that the Covid-19 rates were stabilising or falling. The Three Tier alert system for England has since been introduced in recognition of the fact that Coronavirus is spreading at different rates in different parts of the country and that additional financial help will be needed for those areas placed in Tier 2 (high alert) and Tier 3 (very high alert). Whilst funding for businesses in Tier 3 areas (the very highest category) has been relatively easy to formulate and arrange, there has been a serious miscalculation of the financial effect on businesses in Tier 2 areas. In short, although many of them are allowed to trade, the unforeseen consequences on the behaviour of customers and wider trading patterns in Tier 2 areas have resulted in a massive fall in income for most businesses.
To help protect businesses throughout the UK – and, crucially, jobs – the Chancellor has now greatly extended the financial help available. We might refer to the new packages as ‘Furlough Mark 2’ and these are explained in the rest of this bulletin.
Areas like London and Essex are now under ”high alert” Tier 2 rules. Places like pubs and cafes have been less busy because household mixing indoors is banned. Firms like these, which can open but only have enough work for employees to return part-time, can also get help under the JSS, regardless of which Tier they are in.
Staff members have to be paid by their employer to work a minimum 20% of their hours per month. The employer must pay an extra 4% of total wages to cover some of the hours not worked and the Government will pay 49% of the total salary to cover hours not worked; so, overall the worker would get at least 73% of their salary. The maximum contribution the Government will make is £1,541.75.
The Key Points
In recognition of the challenging times ahead, the Chancellor said he would be increasing support through the existing Job Support and Self-Employed Schemes, as well as expanding business grants to support companies in high-alert level areas.
Businesses that are allowed to remain open and which are experiencing considerable difficulty will be given extra help to keep staff on as the Government significantly increases contribution to wage costs under the JSS, whilst business contributions drop to 5%
Business grants are expanded to cover businesses in particularly affected sectors in high-alert level areas, helping them stay afloat and protecting jobs.
Grants for the self-employed will be doubled to 40% of previous earnings.
This builds on agreements reached with Local Authorities moving to ‘Alert Level very high’ (Tier 3), with extra support for businesses, jobs and the economic recovery.
The Job Support Scheme (JSS) – overview
Recognising the pressure businesses in some sectors and geographical areas are facing, the new measures are designed to lighten employers’ financial problems in keeping-on staff.
When originally announced, the JSS – which will come into effect on 1st November, immediately after the original Furlough Scheme ends on 31st October – required employers to pay a third of their employees’ wages for hours not worked and required employees to be working 33% of their normal hours.
The revised scheme (‘Furlough Mark 2’ as we have called it) reduces the employer contribution for those unworked hours to just 5% and reduces the minimum hours requirements to 20%; thus those working just one day a week will be eligible. That means that if someone was being paid, say, £587 for their unworked hours, the Government will now be contributing £543 and their employer only £44. Employers will continue to receive the £1,000 Job Retention Bonus. The Job Support Scheme for businesses legally required to close (mainly in Tier 3 areas) remains unchanged.
The Job Support Scheme ‘Open’ (JSSO) – more details
The JSS ‘open’ starts to operate from 1st November and covers all Nations of the UK. For every hour not worked, the employee will be paid up to two-thirds of their usual salary.
The Government will provide up to 61.67% of wages for hours not worked, up to £1541.75 per month (more than doubling the maximum payment of £697.92 under the previous rules). The cap is set above median earnings for employees in August at a reference salary of £3,125 per month.
Example: a typical full-time employee in the hospitality industry is paid an average of £1,100 per month. Under the Jobs Support Scheme for open businesses, they will still take home at least £807 a month. All the employer needs to pay is a total of £283 a month or just £70 a week; the Government will pay the rest.
Employers using the scheme will also be able to claim the Job Retention Bonus (JRB) for each employee that meets the eligibility criteria of the JRB. This is worth £1,000 per employee. Taking JSS-Open and JRB together, an employer could receive over 95% of the total wage costs of their employees if they are retained until February 2021.
For more information see the Job Support Scheme Open Factsheet.
Please see this link for more general information about the Job Support Scheme.
Here’s a useful explanatory BBC/Treasury graphic:
Grants for the Self-Employed
The new package increases the amount of profits covered by the two forthcoming self-employed grants from 20 per cent to 40 per cent, meaning the maximum grant will increase from £1,875 to £3,750.
This is a potential further £3.1 billion of support to the self-employed through November 2020 to January 2021 alone, with a further grant to follow covering February to April 2021.
The Chancellor has also announced additional funding to support cash grants of up to £2,100 per month primarily for businesses in the hospitality, accommodation and leisure sector that may be adversely impacted by the restrictions in high-alert (Tier 2) level areas. These grants will be available retrospectively for areas that have already been subject to restrictions and come on top of higher levels of additional business support for Local Authorities moving into Tier 3 (very high-alert).
These grants could benefit around 150,000 businesses in England, including hotels, restaurants, B&Bs and many more that aren’t legally required to close but which have been adversely affected by local restrictions nonetheless. Check with your Local Authority from 1st November to see if you qualify.
Help for Self Employed People
- The Government will provide two taxable Self-Employed Income Support Scheme (SEISS) grants to support those experiencing reduced demand due to Covid-19 but who are continuing to trade or who temporarily cannot trade.
- The new grants will be available to anyone who was previously eligible for the SEISS grant one and grant two – and who meets the eligibility criteria.
- Grants will be paid in two lump sum instalments each covering 3 months. The first grant will cover a three-month period from the start of November 2020 until the end of January 2021. The government will pay a taxable grant which is calculated based on 40% of three months’ average trading profits, paid out in a single instalment and capped at £3,750.
- The second grant will cover a three-month period from the start of February until the end of April 2021. The Government will review the level of the second grant and set this in due course.
- For more information on SEISS and eligibility see the HMRC website
Other Local Business Grants
- The Government will be providing additional funding to allow Local Authorities (LAs) to support businesses in high-alert (Tier 2) level areas which are not legally closed but which are severely impacted by the restrictions on socialising. The funding LAs will receive will be based on the number of hospitality, hotel, B&B, and leisure businesses in their area – but other businesses may qualify too.
- LAs will receive a funding amount that will be the equivalent of:
- For properties with a rateable value of £15,000 or under, grants of £934 per month.
- For properties with a rateable value over £15,000 and below £51,000, grants of £1,400 per month.
- For properties with a rateable value of exactly £51,000 and over, grants of £2,100 per month.
- This is equivalent to 70% of the grant amounts given to legally closed businesses (worth up to £3,000/month).
- Local Authorities will also receive a 5% top-up amount to these implied grant amounts to cover other businesses that might be affected by the local restrictions but which do not neatly fit into these categories.
- It will be up to Local Authorities to determine which businesses are eligible for grant funding in their local areas and what precise funding to allocate to each business – the levels mentioned above are an approximate guide.
- Businesses in Very High alert level (Tier 3) areas will qualify for greater support whether closed (up to £3,000/month) or open. In the latter case support is being provided through business support packages provided to Local Authorities as they move into the relevant alert level. The Government is working with local leaders to ensure the Alert Level very high (Tier 3) packages are fair and transparent.
Check with your Local Authority from 1st November to see if your business qualifies.
For more information see the Business Grants Factsheet
We will issue further advice and guidance Bulletins as the Covid-19 situation develops.
Sir Henry Boyle
1030 hrs 24th October 2020