Sunak Boosts U.K. Aid Again as Economy Reels Under Virus Curbs

(Bloomberg) -- Chancellor of the Exchequer Rishi Sunak announced a significant increase in U.K. government support for businesses hamstrung by the resurgent coronavirus, his third push in less than a month to stop a wave of job losses.

He raised government contributions to workers’ wages, and reduced the hours they have to work in order to qualify for state support. He also stepped up help for the self-employed and announced a package of grants to businesses suffering because of pandemic restrictions.

While the extent of the measures will depend on the take up from companies, the changes could bring the cost of wage-support plans to more than 10 billion pounds ($13 billion) over six months.

The announcement follows bitter rows between Boris Johnson’s government and local leaders in northern England, who accused Sunak and the prime minister of offering too little help despite imposing new curbs to control the virus. Many economists also criticized the finance minister for his decision last month to replace the furlough program with less generous support.

“It is clear that even businesses who can stay open are facing profound economic uncertainty,” Sunak told the House of Commons. “There are difficult days and weeks ahead. But we will get through this together.”

Countering criticism that the government is sidelining the North, Sunak said the new grants for businesses in areas under less onerous so-called tier 2 restrictions would be backdated to August for parts of the country that have faced those rules for longer. London moved into tier 2, which stops people from different households socializing indoors, last weekend.

While Sunak had wanted to wean firms and workers off aid, those efforts have been overtaken by the rapid spread of the virus and renewed localized restrictions. Curbs on economic activity threaten to worsen a spike in unemployment, and a recession predicted to be the sharpest and deepest in three centuries.

What Bloomberg’s Economists Say...

“The changes were long overdue and will go some way toward mitigating both a shake out in the jobs market, as the old furlough scheme comes to an end, and the risks posed by a winter surge in the pandemic. Even so, the measures have come very late and jobs will still be lost -- many redundancies are probably already in the pipeline.”

-- Jamie Rush, chief Europe economist. Read his full REACT.

The Treasury has now twice been forced to announce bigger aid packages after a less generous initial replacement for the furlough plan was unveiled last month. Such piecemeal steps risk taking some of the shine off the finance minister, who won plaudits for his handling of the crisis in the early days of the pandemic.

“We’ve got to get ahead of this crisis instead of always running to keep up,” Labour Shadow Chancellor Anneliese Dodds told the Commons. “For months, we’ve urged the chancellor to get ahead of the looming unemployment crisis and act to save jobs. Instead, we’ve had a patchwork of poor ideas rushed out at the last minute.”

Under the new plans announced by Sunak on Thursday:

• Employees now only need to work 20% of their normal hours to qualify for the job support program which starts on Nov. 1, down from 33%
• The government cut the proportion of wages for unworked hours that businesses must pay to employees who are returning part-time. The share that businesses must pay will fall to 5% from 33%, with the state contribution increasing
• Businesses under tier 2 restrictions will qualify for grants worth as much as 2,100 pounds ($2,752) a month, to be paid out by local authorities. The grants will be backdated to August
• State grants for self employed people will double to 40% of their wages

Business groups welcomed the new measures. Confederation of British Industry Director-General Carolyn Fairbairn said the beefed-up program “will protect many livelihoods when it begins” next month.

British Chambers of Commerce Director General Adam Marshall called it “a very significant improvement in the support available to businesses,” and MakeUK Chief Executive Officer Stephen Phipson said the latest package is a “critical step” in protecting jobs. He called for more assistance for sectors that are particularly badly impacted.

However, Institute of Directors Director General Jonathan Geldart flagged a “glaring gap” in the absence of support for small company directors who have fallen through the cracks since the outbreak began. Their exclusion from support “becomes all the more pressing as the virus wears on,” he said.

Sunak singled out the difficulties faced by the hospitality industry. Sandwich chain Pret a Manger announced last week it was cutting a further 400 positions, on top of the 2,800 removed earlier this year, while U.K. hotel operator Whitbread Plc is also planning to eliminate almost one in five jobs.

Job cuts already jumped the most on record in the three months through August, even as the lockdown eased. Some economists are predicting unemployment could surpass 3 million, a level not seen since the 1980s.

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