The Chancellor, Rishi Sunak, pulled off another masterstroke yesterday by announcing a second, and most likely final, extension to the Job Retention Scheme until the end of October.
But it is now essential that the Government look at other support measures, which stimulate economic activity as the furlough scheme begins to be phased out from August.
The Government also need to look at solutions to help businesses and their employees address real cash-flow pressures, as well as medium-term measures that will support the economy, so that it can emerge from the recession quickly and in a strong position.
Businesses needed to know the medium-term roadmap for the furlough scheme, as they continue to face extremely difficult trading conditions. This key Government support measure is absolutely vital and will give businesses a cushion over the summer months, with the hope that lockdown measures can ease further and signal a re-opening of the UK economy.
The overall cost of the furlough scheme is now expected to hit £70bn. The taxpayer cannot continue to support this cost indefinitely.
The Government will also be acutely aware that the COVID-19 crisis has created a heightened risk of insolvency; a recent survey by the Centre for Economics and Business Research (CEBR) suggested that over half a million UK businesses are concerned about insolvency.
The new measures should include:
1. The Government introduce an employers’ National Insurance holiday, subsidy or deferral – this would encourage businesses to re-engage with the workforce and remove a barrier to employment.
2. The Government should look to offset the reduction in the furlough provision by allowing businesses to defer the repayment of the Government contribution, as opposed to receiving a grant.
3. The Government should introduce new measures in conjunction with the private sector to support working capital requirements over the next 12 months. The measures could include:
- Offering 100% guarantees to the banks to underwrite risk of business loans
- Research & Development (R&D) tax credit claims should be modified to allow for claims to be made on a quarterly basis; and the amount of cash which can be received relative to the R&D expenditure should be increased
- Allow businesses to extend the current carry-back period for tax losses to three years, to allow for an immediate repayment of historic taxes
- Extending and spreading the existing tax deferral measures for a further a 12-month period.
4 . To encourage the private sector to play a greater role in supporting the economic recovery in the medium to long-term, the Government should:
- Reverse the decision to cut the Entrepreneurs’ Relief lifetime limit to £1m, made in the March Budget
- Increase the existing venture capital (SEIS/EIS) investment limits for businesses and individuals, to encourage greater private investment into businesses
- Enhance the tax breaks for private individuals making investments under VCT/SEIS/EIS, to provide more attractive incentives for private investment into businesses.
5. The Government should reduce VAT rates in a targeted manner to promote expenditure on qualifying goods and services to fuel the economy.
The furlough scheme has undoubtedly been a major success, and the move to extend the scheme to October will ease the immediate pressure on businesses. Re-starting the economy is now a key priority for the Government and introducing flexible short-term measures to encourage immediate activity is central to this agenda.
If you would like to discuss any of the above or have other queries about how you can make the right decisions for the future of your business and your income, please contact your usual Blick Rothenberg contact or Milan Pandya.
You can also visit our Coronavirus – Practical Guidance for businesses today Hub for our latest updates and insights.