As the end to the Job Retention Schemes looms with redundancies already rising even before its expiration, one question has gained momentum in recent weeks, what comes next?
The Chancellor Rishi Sunak unveiled a series of measures to protect workers and businesses during the winter in today’s Winter Economy Plan. The key change, and no doubt will dominate headlines for days to come, pertains to the Job Support Scheme to mitigate unnecessary redundancies.
There were also a number of announcements around other business support measures, these included:
1. Keeping VAT low
The Government has announced it will extend the 15% VAT cut for the hospitality and tourism sectors until the end of March 2021. These two sectors include some of the hardest hit in the UK as a result of the pandemic, and by association of supply-chains the contraction in these sectors have similarly impacted manufacturing (particularly for Food & Drink and Aerospace) too. Although this measure does not directly benefit the manufacturing sector, it will ease pressures for customers further down the supply-chain.
However, more needs to be done to directly support critical subsectors such as Aerospace and Automotive too.
2. Deferring the inevitable(s)
Manufacturers that have deferred their VAT bills will be afforded some extra room to manoeuvre their payment options through the New Payment Scheme, this will allow firms an option to pay back in smaller instalments — rather than pay a lump sum in March 2021, bills can be spread over 11 smaller repayments that will go into the 2021/2022 financial year.
The announcement is a positive one for those UK manufacturers that have seen their cash-flow levels evaporate during the crisis, offering a manageable solution to businesses yet to see a return of orders. However, manufacturers should be careful as delaying these payments are not equivalent to eliminating them and if not managed correctly it could result in a double whammy of fees in over a years’ time. The likely consequence of which would lead to investment levels remaining protracted for the foreseeable future.
3. Pay as you Grow to Bounce Back
The Government has recognised the risk of spiralling debt for business that have accessed loans as a means to finance short-term costs. Particularly, small businesses that took out a Bounce Back Loan will be afforded a Pay as you Grow repayment plan — the measure will increase the length of the loan from six years to ten, as a result cutting monthly repayments by nearly half. Furthermore, interest-only periods of up to six months and payment holidays will also be available to businesses.
Similar to VAT deferrals, this scheme is aimed at supporting short-term cash-flow issues for businesses in difficult times, whilst simultaneously aiming to reduce the risk of taking on more debt, thereby being hopeful that investment will increase leading to growth. The scheme will provide manufacturers with much needed breathing space, with a longer time horizon than VAT deferrals allowing firms to plan for the future.
4. Changes to Coronavirus Business Interruption Loan Scheme
Lenders of CIBLS finance will also have the ability to extend the length of loans from a maximum of six years to ten years for those businesses that need it.
In addition, businesses that still wish to access further finance support will now find the deadline for applications has been extended to the end of November. This includes loans from any of the following:
- Coronavirus (Large) Business Interruption Loan Scheme
- The Bounce Back Loan Scheme
- The Future Fund
For manufacturers who were sceptical about taking on additional debt earlier this year will not only find themselves with extra time to apply should it be necessary, but with an added bonus of more favourable repayment terms such as via Pay as you Grow. In the short-term this will support businesses looking to keep their doors open through the winter.
A step in the right direction to support jobs, but direct sector support still missing
The announcements made today will not only support UK manufacturers, but the majority of the private sector across the country. Although it is unfortunate there were no manufacturing subsector specific announcements made at this moment, a number of these moves will still support day-to-day costs as manufacturers need not fear a hefty bill in the post during the first quarter of next year.
Job Support Scheme (JSS)
Once the JRS is substituted for the JSS in November, employers facing depressed demand will be given financial support to retain employees in their jobs on short hours, rather than making them redundant. To ensure that the jobs supported are viable, to be eligible under the JSS employees will have to work at least a third of their normal hours and their employer will have to pay them as normal for those hours. For a comprehensive overview of the JSS read here