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Chancellor Rishi Sunak is under intense pressure this weekend to deliver a massive “second wave” of financial support to companies in a matter of weeks amid growing fears of a catastrophic start to the summer of spiraling unemployment and bankruptcies in Business.
With the government’s £ 40 billion job retention plan through the end of June, business groups and the Labor party are demanding that Sunak urgently extend the plan to give an essential lifeline to the UK economy.
Under the scheme, known as leave, the government covers 80% of the wages of workers who stay home and do not work at all, up to a limit of £ 2,500 per month. So far, an estimated 140,000 UK companies have chosen to lay off a total of around 4 million employees.
But big and small employers have warned the Treasury that they will need to notify the government of large-scale layoffs over the next fortnight if it doesn’t provide details soon of the subsidies it will offer beyond June.
Last night, the Royal Society for the Advancement of Arts, Manufacturing and Commerce (RSA) said that disconnecting the license grant too soon, before the blockade had been substantially lifted, ran the risk of a return to unemployment rates not seen since the 1930s.
Alan Lockey, head of RSA’s Future Work Center, said: “An estimated 27% of the entire workforce is on leave, with more than 80% of hospitality workers affected. If those people were laid off, the level of unemployment would skyrocket to levels not seen since the Great Depression. ”
Tej Parikh, chief economist at the Directors’ Institute, said the government should try to avoid a precipitous moment when support suddenly ended: “Getting the economy back on track will not be like flipping a switch. Even if the measures of With the blockade lifted entirely, many companies would not expect demand to rise to normal levels immediately.
“A sudden removal of the licensing plan in late June could cause major problems for some companies, so the government should explore how it could flexibly reduce the system.”
Writing in today’s Observer, shadow business secretary Ed Miliband asks Sunak to do more. “Thousands of companies face an existential threat, with risks for hundreds of thousands of their workers and the very fabric of our streets and communities,” he writes.
“Essential public health measures must be accompanied by financial aid. The government must act urgently with a second wave of support, which includes, when necessary, an extension of the leave plan, with greater flexibility to allow part-time work, and must look again at the gaps in current schemes ” .
Miliband also says that companies that pay dividends to shareholders should not be eligible for state support. “If you are a large multinational and plan to pay dividends to your shareholders while claiming government resources, you clearly do not need them. Each pound that is due is a pound denied to an SME [small or medium-sized enterprise] for those who can make the difference between surviving or going to the wall. “
EasyJet paid £ 171m in dividends to shareholders last month while negotiating a £ 600m loan from the Treasury and the Bank of England emergency coronavirus fund. The airline’s founder and largest shareholder, Sir Stelios Haji-Ioannou, received £ 60 million from the dividend payment.
Meanwhile, Tesco paid a dividend of £ 635 million while accepting a similarly sized tax exemption from the government’s emergency support package for the coronavirus.
Companies in the hospitality sector have placed more than 80% of their employees in the leave plan, while the average for the private sector is 27%.
Treasury sources said last night that the issue of extending the license plan beyond June was under review. It is in talks with business groups to allow companies to request support for staff returning to work part-time to avoid a “decision on the brink of the precipice” that would otherwise force companies to choose between reinstating or firing employees. .
Make UK, the manufacturers’ trade body, warned that companies would have a hard time getting factories back to full capacity without a more flexible scheme to subsidize part-time work.
However, government officials are cautious about extending the subsidies beyond June, after the Office of Budgetary Responsibility calculates that this year the cost will exceed £ 100 billion.
The National Institute for Economic and Social Research said Treasury bailout plans and additional spending from other departments would likely send loans this year to more than £ 200 billion, raising the annual spending deficit to above 10%.
In an open letter to Prime Minister Boris Johnson, President of the British Chambers of Commerce, Ruby McGregor-Smith said: “Starting with the Chancellor’s budget in March, Her Majesty’s government has acted swiftly to deliver cash to companies on the ground through loans, grants and the job retention scheme. The government must ensure that these schemes continue to evolve to support a gradual restart of the economy, allowing companies to survive this crisis and prosper in the future. “
Johnson is expected to announce a general strategy to lift the blockade later this weekend. Downing Street sources said the priority would be to get as many companies back to work safely, but only when the number of new Covid-19 cases has dropped substantially from its current level. They denied reports that the two-meter physical spacing rule could soon be relaxed. However, new measures are likely to be announced soon to force people entering Britain to quarantine for two weeks.
