KEY POINTS

  • Sunak extended a reduced VAT of 5% for the hospitality and tourism industries
  • The new job support program will run for six months beginning in November
  • The government’s prior furlough policy supported more than 9 million workers at a cost of some 39 billion pounds

Britain’s Chancellor of the Exchequer Rishi Sunak unveiled a new jobs program on Thursday as prior furlough programs expire and the COVID-19 pandemic threatens to lead the country to another lockdown

Sunak, Britain’s finance minister, disclosed details of his plan to parliament that will include:

  • A new “job support scheme” to subsidize the wages for people engaged in part-time work at small and medium-sized firms.
  • Loan extensions to companies suffering from virus-related restrictions.
  • An extension of a reduced value added tax of 5% for the hospitality and tourism industries through the end of March.
  • New support for the self-employed Britons “on similar terms and conditions as the new jobs support scheme.”

In the new job support plan, workers who now have fewer hours due to lower demand will have their pay subsidized by the government, along with a contribution from employers to make up part of that gap.

This program will run for six months beginning in November.

For example, BBC noted, if a worker normally earns £2,000 ($2,540) per month, but is only working 50% of their normal hours, he or she would receive £1,000 ($1,270) of their normal pay, plus £333 ($424) each from their employer and from the government.

This may cause strife among some company bosses who might not want to pay employees for hours they don’t work when employers are already facing other financial pressures.

“The big risk is employers shun [Sunak’s] new wage subsidy scheme rather than paying up for employees on reduced hours,” said Bloomberg economists. “A spike in unemployment as the economy begins its adjustment to a new normal appears inevitable.”

The government’s prior furlough policy – which has supported more than 9 million workers at a cost of some 39 billion pounds ($50 billion) – expires at the end of October. That program paid about 80% of workers normal wages.

Simon Cureton, CEO of business finance marketplace Funding Options, said of the new program: “Small businesses will breathe a sigh of relief today. The imminence of a ‘second wave’ [of coronavirus] and the potential return of lockdown restrictions, combined with the knowledge that government support was due to be repealed, put severe pressure on already fraught business owners.”

However, Sunak warned that these measures will not be enough to prevent new rounds of layoffs across the country.

“Our economy is now likely to undergo a more permanent adjustment,” Sunak told the House of Commons. “I cannot save every business, I cannot save every job. No chancellor could, but what we can and must do is deal with the real problems that businesses and employees are facing now.”

Sunak has also cancelled plans to release a full-scale budget for the autumn, citing disruptions to the economy by the pandemic. Both Sunak and his boss, Prime Minister Boris Johnson, have warned that virus-related restrictions may last for at least another six months.

Sunak also eased the terms of the government’s “bounceback” loans for small businesses – such loans, he said, could be paid back in 10 years rather than six, with monthly repayments cut in half.

In addition, more than 1 million firms that took out such loans can choose to make interest-only repayments and suspend payments altogether for up to 6 months. (About 60 billion pounds – $76 billion – of these loans have been issued according to the U.K. Treasury).

Now a rise in COVID-19 cases has spurred more worried about the economy.

“Experience of the last few months suggests that consumers want to return to leisure facilities and travel when it is safe to do so,” said Karen Ward, chief EMEA market strategist at JPMorgan Asset Management. “A viable vaccine – news of which could arrive any day – would facilitate a return to life much as we knew in 2019.

"We still don’t know whether the restrictions already announced will be sufficient to contain the spread of the virus or whether additional measures will be required," she added. "And importantly, ending the year without a sufficiently broad trade deal with the EU could lead to yet more challenges for U.K. business.”