How U.K.’s $168 Billion Virus Aid Package Is Being Rolled Out
How U.K.’s $168 Billion Virus Aid Package Is Being Rolled Out
(Bloomberg) --
Chancellor of the Exchequer Rishi Sunak has deployed unprecedented support to help U.K. companies and workers cope with the economic damage wrought by the coronavirus pandemic. The Office for Budget Responsibility last week estimated the response so far will cost taxpayers almost 133 billion pounds ($168 billion) in the current fiscal year.
Significant job losses are nonetheless inevitable, with the country in its third month of lockdown in an effort to stop the spread of the virus. The Bank of England says the economy could shrink 14% this year, the biggest contraction since 1706.
Here’s a rundown of the measures, and their take-up so far:
Extra Funding:
The government has spent an extra 16 billion pounds on public services, according to the OBR.
- National Health Service: Delivering his Budget on March 11, Sunak said “whatever extra resources our NHS needs to cope with Covid-19, it will get.” He announced a 5 billion-pound emergency response fund available to the NHS and other public services.
- Welfare: Claimants of contributory employment and support allowance benefits can claim from day one rather than day eight of being unemployed. The government removed the minimum income floor on Universal Credit -- including for the self-employed -- and increased the standard allowance by 1,000 pounds per year. The Working Tax Credit basic element was also raised by 1,000 pounds per year. Welfare measures are worth about 8 billion pounds, according to the OBR.
- Sick Pay: Statutory sick pay will be paid from day one, not day four, and extended to people advised to self-isolate regardless of whether they have Covid-19 symptoms. For as many as 2 million companies employing 250 people or fewer, the government will cover payments up to 14 days -- a commitment of as much as 2 billion pounds, though the OBR estimates the cost at half that.
- Hardship Grants: 500 million pounds to be distributed by local authorities to directly support vulnerable people in their areas.
Results so far: According to provisional Department for Work and Pensions data, some 2.87 million claims for universal credit were received between March 16 and May 26.
Business Grants
- Cash grants of 10,000 pounds for 700,000 of the country’s smallest businesses -- those that don’t pay business rates.
- Retail, hospitality and leisure sector businesses with a so-called ratable value of less than 51,000 pounds are eligible for grants of 25,000 pounds.
- Some 12 billion pounds was paid out to councils to fund the grant programs, according to Sunak.
Results so far: Business Secretary Alok Sharma tweeted last week week that some 10 billion pounds has been paid out to businesses in grants so far.
Tax Breaks
- Business Rates: All hospitality, retail and leisure firms have a one-year business rates holiday. The Centre for Policy Studies valued the measure at 13 billion pounds.
- VAT Holiday: No business will have to pay value-added tax in the April-June quarter, with payments deferred until the end of the financial year. Sunak said it amounts to a cash injection of 30 billion pounds.
- The Treasury slashed to zero the VAT rate on personal protective equipment, saving care homes and businesses more than 100 million pounds. It also brought forward by seven months the abolition of VAT on electronic books and newspapers.
- Income Tax: The self-employed are able to defer their payments to January.
Loan Guarantees:
On March 17, Sunak announced 330 billion pounds of loan guarantees -- equivalent to 15% of GDP. This was made up of:
- Covid Corporate Financing Facility: A Bank of England-administered program that allows large companies with investment-grade credit ratings to issue short-term debt in the form of commercial paper lasting as long as a year, to help them cover immediate cash needs.
- Coronavirus Business Interruption Loan Scheme: The program was first announced on March 11 and later extended in scope, allowing small companies to access loans of as much as 5 million pounds, with no interest to be paid for the first 12 months. To encourage commercial banks to lend the money, the government guaranteed to incur the first 80% of any losses on the loans, which first became available on March 23. Sunak has effectively ruled out raising the Treasury guarantee to 100%.
- Coronavirus Large Business Interruption Loan Scheme: Originally announced by Sunak on April 4 and since expanded in scope, the program allows for companies with an annual turnover greater than 45 million pounds to access loans of as much as 25 million pounds. Those with turnover of more than 250 million pounds can borrow as much as 50 million pounds.
- A new “bounce back” loan program that’s 100% backed by the state. Designed to help the smallest businesses, but open to companies of all sizes, it gives them access to loans of between 2,000 pounds and 50,000 pounds, with interest rates capped at 2.5% and the government paying the interest and fees in the first year.
Results so far: As of June 3, the Bank of England had purchased a net 16.2 billion pounds of commercial paper under the CCFF program, benefiting 53 businesses. On Thursday, it published a list of beneficiaries.
Under the business interruption loans programs almost 46,000 loans worth 8.9 billion pounds have been approved so far, the Treasury said last week. Under the interruption loans program for larger companies, 191 loans have been approved, totaling over 1.1 billion pounds.
Under the bounce back loan program, almost 700,000 loans worth 21.3 billion pounds were approved in the first two weeks.
Paying Wages:
- Coronavirus Job Retention Scheme: Any employer regardless of size or profitability can furlough its workers, and the government will pay 80% of their wages up to a total of 2,500 pounds a month -- so long as the employee remains linked to the job and doesn’t work during the furlough period. Employers are allowed to top up employee salaries. The program was backdated until March 1 and Sunak has now extended it until the end of October, with employers bearing more of the cost in its final months. It covers all those on a company’s payroll by March 19. The OBR estimates the cost, net of income tax levied on the payments, at 54 billion pounds.
- Self-Employed Workers Scheme: On March 26, Sunak said the government would pay the self-employed a taxable cash grant worth 80% of their average monthly profits, up to a maximum of 2,500 pounds, for at least three months. He’s since extended it to provide another 3 months support at a level of 70% of monthly profits. The program is open to anyone with an annual income of up to 50,000 pounds. The OBR estimates its cost at 15 billion pounds.
Results so far: The furlough program is supporting more than 8.7 million jobs with 17.5 billion pounds claimed so far, the Treasury said last week. By May 31, the self-employed program had received 2.5 million claims for grants totaling 7.2 billion pounds.
Housing:
- Mortgage Holiday: Sunak initially came to an agreement with lenders to grant homeowners in difficulty a three-month mortgage holiday -- a grace period that’s now been extended by another three months.
- For renters, Sunak increased housing benefit and Universal Credit to cover at least 30% of market rates -- a measure he valued at almost 1 billion pounds.
Results so far: Some 1.86 million customers had been granted mortgage holidays, as of May 28, according to UK Finance. That’s one in six of all mortgages.
Sectoral Deals
- Trains: The Department for Transport said on March 23 it will take on the revenue and cost risk for the nation’s rail services for six months, with operators continuing to manage day-to-day services for a “a small, predetermined management fee.”
- London Transport: The government last week agreed to 1.1 billion pounds of extra funding to keep the capital’s transit system running, as well as a loan of 505 million pounds.
- Buses: On April 3, the government announced a 400-million pound package to keep bus services running nationwide, including 167 million pounds of new money.
- Freight and Ferries: The Department for Transport has announced support for freight and ferry routes, including 17 million pounds for links between mainland Great Britain and Northern Ireland and 10.5 million pounds for links to the Isle of Wight and Isles of Scilly. There was also an unspecified amount of support for routes to continental Europe.
- Charities: Sunak on April 8 announced a 750 million-pound package to help hospices and other charities weather the crisis.
- High-Growth science and technology: On April 20, Sunak announced a 1.25 billion-pound package of support for technology and life sciences firms driving innovation. Small and medium-sized companies focused on research and development were given 750 million pounds of grants and loans, while high-growth companies hit by the pandemic were offered loans worth 500 million pounds. Under that program, companies would get loans of between 125,000 pounds and 5 million pounds, with private investors matching the government commitment. If the loans aren’t repaid, they will convert to equity stakes.
- Other: there have been small-scale support packages for various niches of the economy, including 14 million pounds for zoos and aquariums, 16 million pounds for the sport of rugby league, and a grant program enabling dairy farmers to secure 10,000 pounds apiece.
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