Interactive Investor

The winners and losers from the chancellor’s new jobs scheme

24th September 2020 14:40

Sam Barker from interactive investor

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Rishi Sunak offers lifeline to SME companies, but questions remain for larger firms and those already struggling.

Small and mid-sized companies will benefit from a new support package announced by the Treasury today, but larger and “non-viable” firms stand to lose out.

Chancellor Rishi Sunak said the government will top up the wages of workers on reduced hours due to the coronavirus crisis, to stave off redundancies.

The Jobs Support Scheme will support the wages of people in “viable” jobs working at least a third of their standard hours.

Employers will pay staff for the hours they work. For hours not worked the government will pay two-ninths, or around 22%, of the person’s salary, and the employer another 22%. The employee would then get nearly 78% of their normal wage.

But that is the maximum and only applies to people working the minimum of a third of their usual hours.

If an employee works half of their contracted hours, the government contribution falls to just The scheme will run for six months from November, and small and medium-sized firms are eligible automatically.

Other winners from the announcement are the hospitality and tourism industries, which have a VAT reduction scheme extended. These sectors currently pay 5% VAT rather than the usual 20%. This was due to end in January 2021, but has now been extended until the end of March.

The self-employed will also gain from the announcement, as the current Self-Employment Income Support Scheme will be extended for six months from the start of November.

Sunak also announced a "pay as you grow" scheme which will allow firms to repay their Bounce Back loans over a period of up to 10 years, cutting average monthly repayments on a typical loan by nearly half.

Bounce Back loans, coronavirus business interruption loans, coronavirus large business interruption loans and the future fund will all be available until 30 November.

Share prices and the pound have also benefitted from the chancellor’s statement. 

Lee Wild, head of equity strategy at interactive investor, says:

“Equity traders responded positively to the chancellor’s statement, although markets remain fragile and any further gains will be hard won. Just an hour after statement share prices have already begun to fall. Sterling is higher than it was at the beginning of the day, but it remains unclear whether today’s news will put a floor under the currency.”

Losers

But other groups stand to lose out from the chancellor’s plans.

Big businesses can only access the Jobs Support Scheme if they have taken a big hit from the economic effects of Covid-19.

The scheme is also little help to companies already struggling and laying off staff.

Ian Goodwin, employment tax director of accountants Mazars, says:

“The news is not going to help those who are on the brink and need to make redundancies. It is also not going to be available to large businesses in the UK unless they have a significant dip in turnover.

“It is likely that these businesses have already started redundancy consultations given the 45-day notice period, so despite the chancellor’s best efforts we may still see a significant spike in unemployment over the coming weeks.”

The chancellor’s new plans are also less generous than the current furlough scheme, and further redundancies are inevitable.
Wild says:

“The extension of government-guaranteed loans taken during the crisis will provide relief to many businesses struggling to survive during the pandemic. However, it does not go as far as furlough did to supporting affected employees, and thousands more jobs will be lost in the months ahead.”

If the Covid-19 economic hit continues into 2021 there is also the risk of a ‘cliff edge’ problem if the scheme runs out after six months and is not extended.

Sunak also announced a new “Pay as you Grow” scheme which lets firms repay Bounce Back Loans gradually for up to 10 years.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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