Overall, I believe the answer is probably yes – but there are gaps in the help they have announced and it remains to be seen how quickly the economy can bounce back without the continued help from the Government into the summer/autumn 2020.
Recap of the main provisions announced by the government:
- Coronavirus Job Retention Scheme
- Help for the self-employed
- Deferral of VAT payments
- Deferral of self-assessment payments
- No need to pay business rates in the retail, hospitality and leisure sectors in England – similar provisions elsewhere in the UK
- Grants for various small businesses of £ 10,000
- Business interruption scheme loans and bounce back business loans
- Future fund
All of the above are innovative and provide hard cash funding for businesses and individuals whose operations are affected by coronavirus. Hats off to Jim Harra (CEO of HMRC) and Chancellor Rishi Sunak, to quickly rewiring the pipework to enable HMRC to be a net payer to taxpayer across the UK.
What are the gaps in the funding? Owner managed businesses operating as a limited company in the UK and paying themselves via dividends will not receive any help. Currently there is a petition before Parliament to attempt to rectify this.
Can the Country Afford Any More Funding?
The Chancellor has already started to reign in the business support – for instance alterations to the furlough scheme and a planned end date of October 2020. Estimates put the scheme as helping around 8.4 million workers who currently have 80% of their salaries paid for by the government – up to £2,500 a month. Clearly the business support, coupled with the massive fall in GDP and tax collections will leave the UK with debts which will need to be paid back at somepoint! Combined with all other pandemic costs, this could leave us with an economic hole comparable to that of World War 11!
It’s very hard to say what the total cost of the pandemic will be as we are only a certain way through the crisis but in total it could be as much as £298bn just for this financial year (April 2020 to April 2021), according to the Office for Budget Responsibility (OBR), – even worse, according to the BBC, leaked Treasury documents suggested the figure this year could be as much as £337bn.
Verdict on the Government
The Chancellor acted quickly in his pre-lockdown budget on 11 March 2020 and most people were pleasantly surprised with his spending and support plans. But in terms of economic reality, the budget seems light years away. Now we are aware of the real potential costs it may be that the next budget contains some very unpleasant reading which must include higher taxes (especially on baby boomers), a break of the triple tax lock), potential tax on non-UK holidays and I expect pension ages will alter again! So, the Chancellor may go from hero to zero in a matter of months.