UK government announces wage support to replace furlough scheme

UK chancellor Rishi Sunak has announced the introduction of a new wage support scheme that will replace the existing Coronavirus Job Retention Scheme when it comes to an end in October.

From November, companies will be able to take advantage of the Job Support Scheme by having employees come back to work on one-third of their normal hours. The government will work with the employer to top up staff members’ pay, guaranteeing workers will receive at least 77 per cent of their wages. However, the scheme means employers will be responsible for paying at least 55 per cent of those wages, with the remaining 22 per cent paid by the government, capped at £697.92 per month.

All small and medium-sized businesses will be eligible, but larger businesses can only apply for the scheme if their turnover has fallen as a result of the pandemic. Sunak added that companies will not be able to issue redundancy notices to employees on the scheme and will also be restricted in terms of capital distribution to shareholders while they are collecting money for employees' wages.

The scheme will run for six months, meaning it could help businesses impacted by new restrictions announced earlier this week. The self-employed income support scheme will also be extended until 30 April 2021, with the government covering 20 per cent of average monthly trading profits via a grant.

Sunak said the scheme is focused on support only those jobs that will be “viable” over the next six months

In addition, to help hospitality and tourism businesses, a 15 per cent reduction in VAT will be extended to the end of March 2021. This scheme was originally due to end in January, but Sunak said he understands the impact of new restrictions on these sectors.

And companies that deferred their VAT payments will no longer be expected to pay a lump sum next March and instead will have the option of splitting payments into smaller, interest-free instalments over the course of 11 months.

Finally, the deadline for all coronavirus loan schemes, such as the business interruption and bounce back loans and the future fund scheme, will be extended to 30 November, while businesses that have already secured loans will be offered more time to pay back the amount they have borrowed, potentially resulting in smaller monthly payments.

While the news gives some relief to companies in the travel and events sectors, MPs have pointed out that the scheme has been announced a week after the deadline for firms to enter a 45-day consultation period on mass redundancies before the end of the furlough scheme, meaning many jobs may already be beyond saving. In fact, airlines such as British Airways and Easyjet and many other businesses in the travel and events industries have already cut thousands of jobs in preparation for the end of the furlough scheme and a prolonged downturn in trading due to new restrictions and a lack of consumer confidence.

Lucy Allan, MP for Telford, specifically called out the hardships faced by the events industry following the announcement that larger conferences and exhibitions will not go ahead from 1 October as originally planned and asked the chancellor to provide confidence that the government would do what it can to support those businesses, but Sunak only responded to say he knows there are conversations happening with the business secretary to determine what can be done to return to a ‘thriving industry’.

Joss Croft, CEO, UKinbound, commented: "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.”

Clive Wratten, CEO of the Business Travel Association, said: “We welcome the chancellor’s ongoing support through the measures announced today. The Job Support Scheme will help temper the level of redundancies in our sector, but it will still place a huge financial strain on businesses currently seeing a catastrophic drop in demand.

“It will not kickstart business travel, a vital enabler of the British economy. This requires urgent action on quick testing at departure. Only this will ease the burden on an industry ravaged by Covid-19.”

Chris Galanty, CEO of corporate travel at Flight Centre Travel Group, said: “We welcome the news from Rishi Sunak that the government is launching the Job Support Scheme, and the cancellation of the VAT increase for the hospitality and tourism industry that was planned for 13 January. However, this is little reprieve for the travel industry – both business and leisure travel – that has been hit so hard by this pandemic.
 
"We are disappointed that the government has not announced more targeted support for the sector. Many jobs have already been lost and, if urgent action isn’t taken, many more are likely to go.
 
"To get travel and the economy moving, the government needs to agree consistent standards and transparent guidelines for travellers. More specifically, the UK government should heed the call from airports and airlines to introduce testing on arrival – a model that is working successfully at many airports around the globe, such as Frankfurt, Amsterdam and Dubai. Furthermore, the government should consider exempting business travellers from quarantine completely, as their risk of contracting the virus is extremely low. Trips are planned meticulously as employers are responsible for their business travellers’ safety. Travel policies stipulate which airlines and hotels can be booked based on hygiene and cleaning protocols.
 
"Leisure travel from the UK to countries all around the world has almost ground to a halt. Whilst business travel is picking up, according to our recent customer research, only a quarter of companies plan to return to pre-Covid levels of UK domestic travel in 2021, and our customers still have long-haul business travel plans on hold indefinitely. 
 
"The ongoing impact of the pandemic is causing great anxiety for our customers, our people and our business, and is clearly having a massive impact on the UK economy. In the UK, business travel is critical to the economy, contributing around £220 billion in GDP in 2019. Business travellers get the deals done and build relationships which drive global trade. That’s going to be even more vital not only in rebuilding the British economy post-pandemic, but also post-Brexit. Since March, business travel has fallen by 90 per cent, and, according to the Business Travel Association, if this trend continues throughout 2020, business travel’s contribution to GDP will fall by £150 billion.
 
"At Flight Centre we have not seen a material shift in revenue since the crisis began and as a result we announced in July that around half of Flight Centre Travel Group’s valued UK employees will be made redundant. This, coupled with Flight Centre retail store closures up and down the country, was devastating, which is why we need to act now in order to save more jobs, and save the travel industry."

Lex Butler, chair of the Hotel Booking Agents Association (HBAA), commented: “Speaking on behalf of the 700,000 people that currently work or have worked in the UK events, accommodation and meetings industry, the chancellor’s new measures are not enough to provide what all the agencies, venues and event services suppliers and their staff desperately needed to prevent some of them from closing or making thousands more staff redundant.
 
“Ahead of reviewing the specific details, we cautiously welcome the new Jobs Support Scheme, the plan for the government to top up wages of workers covering up to two-thirds of their hours for the next six months, deferred and interest-free loan and tax repayments, and keeping VAT on hospitality and tourism to 5 per cent until the end of March; and it’s good to see that that the self-employed have not been forgotten. 

“But since this week’s announced ‘pause’ on larger events being able to take place in the UK, there are too many businesses in our sector facing the prospect of no income or pipeline until well into 2021; they certainly can’t afford to take out loans, or keep staff on even for the reduced hours under the new scheme. Ultimately, this is too little to pull them back from the brink and to keep them going, and HBAA will continue lobbying and campaigning for greater financial support.

“Despite today’s intervention by the government, there will be further devastation of the sector, not only now but potentially for many years to come as so much talent is being lost from the industry.”

Jane Longhurst, chief executive of the Meetings Industry Association (MIA), said: “The government’s ‘radical interventions’ have completely disregarded the business meetings and events sector and its valuable £70 billion contribution to the economy.

“With the forced restrictions to only offer business meetings and events for up to 30 people, the majority of our sector is not even able to open – either because they do not qualify as a permissible venue, or they just do not have the required space to offer socially distanced events.

“Thousands of jobs across the UK are reliant on the business meetings and event sector. The new Jobs Support Scheme that will replace the furlough scheme when it ends on 31 October will be of little use to the sector.

“We know 166,000 staff have already been made redundant and those who remain are either still on furlough or are back in the workforce operating for venues with very little business, so venues will be unable to take advantage of retaining employees on shorter hours for the government to contribute two-thirds of their wages. And it will be a backwards step for those who are able to take advantage, as organisations will in fact have to pay 55 per cent of wages – more than they have already been contributing under the current scheme. This has the effect of increasing their losses.

“The lack of government support will have a huge knock-on effect on business tourism. In particular, many city hotels, restaurants and wider suppliers heavily rely on the business generated by business meetings and events.

“The extension of VAT cuts for hospitality and tourism companies until March 2021 is completely meaningless for our business-to-business sector.

“What we really need is targeted support to protect jobs, plus a fixed reopening date that our hugely viable sector can aim towards… Sadly, without a radical rethink by government, venues will be closing and more jobs will be lost. Some current estimates are that this could be as devastatingly high as 80 per cent of our sector.”

Julian Cox, partner and head of employment, London, at law firm BLM, said: “The new ‘job support scheme’ is no doubt going to cause a huge sigh of relief for thousands of tourism businesses that were otherwise facing a cliff edge – either make job cuts today, or struggle to pay wages indefinitely. The sector continues to grapple with constantly evolving restrictions and curfews, with support for jobs needed just as much now as at the outset of the pandemic, if not more.
 
“The strategy is clear. Keep people in viable employment and support businesses facing reduced demand for the coming six months. Employers in need of this support will now have to undertake a thorough understanding of where, if possible, they can reduce hours, and whether they can balance necessary productivity with this reduction. The challenge is that the cost of hours not worked will come to be split by the government and employer, meaning businesses will effectively have to keep people on for hours not worked – a luxury many businesses simply do not have the provisions to do. Temporary contracts may also need to be agreed when hours are reduced, to ensure employees are clear on their new way of working.
 
“A prolonging of the VAT cut down to 5 per cent until 31 March is another welcome initiative, as the prospect of already struggling businesses having to pay an increased rate of tax threatened to cause even further challenges.
 
“Whilst the chancellor noted that as our understanding of this virus evolves, the government’s approach must also evolve, some will be asking whether the new scheme goes far enough to plug the gap. Many struggling companies will simply not be in a position to contribute that first one-third of wages, which we’ve seen already with the gradual wind down of the furlough scheme. As employers began to make greater contributions, unfortunately, some had to look at job cuts as the cash simply wasn’t available to cover wages.
 
“There will also be many asking whether this has come a little too late, with redundancies already having surged in the tourism sector, as employers make tough decisions to ensure survival in the long-term."