Chancellor launches scheme to top-up employee wages and extends VAT cut to March 2021

The wages of employees kept in work on reduced hours will be topped-up by the government in a bid to ward off redundancies through the winter months.

Chancellor Rishi Sunak has this afternoon revealed that the Coronavirus Job Retention Scheme will be succeeded by a new Job Support Scheme (JSS) from November.

Employees working at least one-third of their normal hours will be eligible for the JSS scheme to have their wages topped up by the government.

Sunak said ending the existing furlough scheme at the end of October remained the right decision, as the country faces six further months under restrictions aimed at limiting the spread of Covid-19.

He said: “[There has been] no harder choice than the decision to end furlough… but as the economy reopens it is fundamentally wrong to hold people in jobs that only exist inside the furlough.”

Under the JSS the employer will pay their employee for hours worked. The government and the employer will then each cover one third of wages applicable for the hours the employee is not working. This sum will be based upon their usual salary but the grant will be capped at £697.92 per month. It will mean employees enrolled in the JSS receive 77% of their usual salaries.

The JSS will be available to all small and medium enterprises, as well as larger businesses that can demonstrate their turnover has fallen during the pandemic.

It will remain in place for six months from the beginning of November. During its duration employers will not be able to make those workers enrolled redundant. Businesses using the scheme will still be eligible for the Jobs Retention Bonus.

Further measures have been announced to help businesses preserve cash flow through the winter, including extending the VAT cut for hospitality to 5% until 31 March 2021.

The chancellor has also launched a “pay as you grow” scheme in relation to its bounce back loans extending the repayment period from six to 10 years. He also introduced a provision for repayments to be suspended for up to six months, or reduced to interest only.

The government guarantee for Coronavirus Business Interruption Loan will also be extended for up to 10 years. The deadline to apply for all loan schemes will be extended to 2020, with successor schemes to be announced in January.

Kate Nicholls, chief executive of UKHospitality, had warned that the end of the furlough scheme threatened a million jobs in hospitality. Responding to the statement she said: "The announcement of further restrictions yesterday was a significant hammer blow that will inevitably depress trading. It was crucial that the chancellor delivered support today that specifically targeted the hospitality sector which has been hit harder than any.

“The announcement of flexible employee support is a move in the right direction, but hospitality needs more targeted efforts to support jobs. Almost one million people in our sector are still on furlough. We need government to go further in hospitality, recognising the greater restrictions imposed upon us, and pick up the full cost of unworked hours. This would be a relatively low cost for huge reward for our workforce. Full support to sustain people in their jobs during what could be a pretty bleak winter for hospitality would be a great step forward.

“Looking ahead, the extension of the VAT cut was absolutely critical. UKHospitality had pushed hard for it, so it is great to see the government taking note of our major concerns about recovery into 2021, though this must be extended further. The announcement of longer tax deferrals and the option of longer loan repayments should deliver some much-needed breathing room for employers.

“Things were looking grim for our sector yesterday and we were desperately hoping for some good news. The chancellor has given us some reason to be positive again, but we urge him to engage with the trade on specific measures to keep people in work. While some of these measures announced today will give businesses a future to shoot for, and hope that they can begin to rebuild, we are still not out of the woods.”

Joss Croft, chief executive of UKinbound, said "Undoubtedly, today's announcement will help many tourism businesses and safeguard jobs, which of course is incredibly welcomed, however the desperate needs of British inbound tourism businesses, who bring international visitors to the UK and support tens of thousands of viable jobs, have once again been overlooked.

“These businesses have received no visitors since March, can't pivot to capture domestic business, continue to be excluded from rate relief and grants and, with so few international visitors, won’t benefit from the extension of the VAT reduction. These businesses are sustainable and will be profitable again, once international tourists can return and are no longer impeded by measures such as quarantine. Whilst we welcome these measures, especially the Jobs Support Scheme, the Government's one size fits all approach doesn't work and is having a detrimental effect on these previously profitable companies, which generated £28 billion to the UK economy in 2019.”

Photo: Flickr - HM Treasury