Chancellor Sunak’s emergency financial measures have come under extreme review as of late with many in the industry being quick to slate the quickly launched schemes.
Sherad Dewedi, Manager Partner at Shenward LLP discusses whether the government’s far-reaching financial support has done enough to meet the nation’s needs, or if these acts of astounding magnanimity are simply storing up vast levels of debt for generations to come.
The government’s unparalleled response has undoubtedly saved countless businesses and jobs, protecting the livelihood and way of life of millions as we enter Phase Two of the crisis.
There’s little disagreement that government funding has been overwhelming in breadth and generosity, but as with all hastily made decisions, there are unforeseen exceptions and long-term side effects to each broad-brushed policy.
The huge centralised programme of intervention including grants, rebates, deferrals of VAT and income tax have been exceptional in intention, reach and execution. But the clock is ticking, and businesses are still on pause.
For businesses accessing the job retention scheme, self-employed grants, cash grants from local authorities, the wait has been a long one. The best estimate is that it’s taking three months to get funds to businesses, the self-employed, and the million-plus new Universal Credit applicants, which not only raised concerns around the many people experiencing financial hardship, but also around how these individuals’ mental health and families are being affected.
That being said, some immediate solutions have been put in place. HMRC for example is taking a welcome pragmatic approach for businesses and individuals paying tax liabilities with their Time to Pay agreements. Deferring VAT and Income Tax has aided cash flow enormously and has helped keep many businesses afloat, but there’s the added concern that later down the line these bills will be due and could cause significant issues for individuals who are still struggling to bounce back from the crisis.
Nevertheless, it must be recognised that both the government and HMRC has acted quickly in the grand scheme of things, but quick reactions come with quicker consequences. The government were quick to launch the Coronavirus Business Interruption Loan Scheme, which was designed in just 4 days, and as a result, it has been beset with difficulties in accessing.
For this reason, small business owners have instead turned to the Bounceback Loan Scheme in droves, with more than 100,000 applications in the first few hours. Through this scheme, businesses can borrow up to £50,000, at lower rates than under the coronavirus interruption loan scheme, but only to a maximum of 25% of their turnover.
But, these bounceback loans for small businesses are designed to be quicker for banks to approve and have a 100% government guarantee, which in itself raises concerns about people potentially flouting the system. Furthermore, the Treasury has set the price for all lenders at 2.5% after the interest-free period, a significantly lower rate compared with business interruption loans of about 3% – 5%, and with these loans being easier to access with a simple digital application form and minimal credit checks, it increases the risk massively.
However, there’s no denying that Chancellor Sunak’s policies are supporting the UK economy in the most staggering way and these loans could quickly plug the gap where the Business Interruption Loan Scheme failed to do so; they are a must-do for SME’s feeling the pinch. Furthermore, they are worth considering if already a customer with Lloyds, Barclays and RBS because the anti-money laundering and other checks will have already been passed.
If the bounceback loans simply don’t provide enough financial support, then businesses may have no choice but to explore the Business Interruption Loan Scheme. Looking at the positives, it is interest-free and therefore a favourable option, but it’s also harder to access.
And there’s everyone’s preferable choice; Furlough, the great economic saviour launched with a fanfare of well-deserved headlines. By midnight of its unveiling, 185,000 firms had submitted claims worth £1.5 billion for 1.3 million employees.
The Coronavirus Job Retention Scheme is, however, a temporary scheme introduced by government to prevent employees from being made redundant due to decreased workload, decreased revenue or business closure by subsidising. The scheme has been extended by a month until the end of June 2020, but recent news revealed that this may not be sustainable and so the support will need to be reviewed. This follows a call for extension from many business leaders who are desperate to help save jobs, so we fear what will happen to the unemployment rates if the scheme is pulled. Our unease is what will happen when furlough ends. Will we see a vast rise in insolvencies, placing extra demands on other aspects of the economy including commercial property, unemployment and the welfare system?
Again, looking at the positives, providing businesses have been able to survive long enough to meet their payroll obligations before they are able to draw down government funds, the furlough scheme has been yet another godsend.
Another group feeling the pinch are the self-employed with earnings in excess of £50,000, and company directors and shareholders who are not self-employed; they aren’t eligible for the Self Employment Income Support Scheme, and may have already found themselves navigating the welfare system, which has of course made extra concessions.
Similar, looking at the retail sector, there have been significant allowances for smaller traders and there’s an apprehension that retailers with rateable value premises above £51,000 and little profits will get very little help, especially if they are limited companies.
Our ‘nation of shopkeepers’ may be lost forever, accelerating inevitable decline of our high streets and city centres. There’s a concern that landlords and residential tenants have not been protected and many could lose their properties either through eviction for not paying rent, or through repossession. As with many of these emergency policies, the pain has simply been deferred, with many landlords left to feel it is they who are footing the bill. Insurance companies are sadly not paying out on claims, because COVID-19 is not a ‘known event.
That being said, last week the Chancellor did announce that those businesses ineligible for the Small Business Grant Fund (SBGF) and Retail, Leisure Hospitality Grant Fund (RLHGF) can apply for ‘top ups’ of up to £25k, so that could be one option to explore.
It’s a worrying time for many and we don’t know how it will pan out, but whatever the outcome, it is clear that government’s swift economic response has achieved what it set out to do in mid-March; it’s enabled us to Stay Home, Protect the NHS and Save Lives.