Press release

24 Sep 2020 London, GB

Chancellor announces new COVID-19 support measures – a shot in the arm or something to soften the pain?

Chris Sanger, EY’s Head of Tax Policy, comments: “It sounds like the start of a joke: When is a Budget not a Budget – when it’s a Winter Economy Plan.

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EY UK&I Media Relations Senior Manager

Passionate media relations and public relations professional helping to provide insight and clarity to complex business issues. Husband and father to twin boys, and a golden retriever.

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Chris Sanger, EY’s Head of Tax Policy, comments:

“It sounds like the start of a joke: When is a Budget not a Budget – when it’s a Winter Economy Plan.

“But today was another in the series of mini-Budgets that we have seen since the onset of COVID-19 – publication of policy interventions to address the urgent need for support to the UK’s citizens, business and the economy more widely. Although these events don’t have the grandeur of Budgets, they nevertheless can have as much of an impact.

Job Support Scheme

“Today saw the creation of the six-month Furlough 3.0 scheme (or Job Support Scheme to give it its official name) – moving from supporting those not working to contributing to the costs of those working only part time.  Under this scheme, the employer would pay 2/3 of employee wages for time not worked, but would receive half of that cost back from the government, up to £697.92 per employee per month.

“Notwithstanding the Chancellor’s new contribution through the Job Support Scheme, reducing worker hours still leaves the employee receiving less and the employer paying more on an hourly basis.

“This may give employers and employees some breathing space, particularly those in businesses facing restricted hours due to curfews.  However, the scheme is less generous than many had hoped, as it still means that retained employees working shorter hours will be more expensive than new employees hired on the new opening hours.

“The move to supporting work rather than requiring people not to work signals an important shift in the focus of HM Treasury. This scheme may take the edge off the pain, but will still leave businesses wondering what the future holds.  Although the scheme runs for six months and be available to employers that were not in the previous schemes, it’s not clear that this will be enough to keep those roles viable for the full period.

“Furlough 3.0 shows that the Government is still willing to support employment, but each iteration delivers less support, with more being expected from employers. This flows from the Chancellor’s determination to avoid supporting “zombie jobs” but to give what might be just enough for those who are struggling through the new environment.

Self-employed

“The Chancellor also provided some support for the self-employed, extending the Self Employment Income Support Scheme for six months, but again at a lower levels.  Those who fell outside the first scheme will still not qualify for this one.

VAT

“Extending the duration of the 5% rate for VAT for hospitality and tourism to 31 March 2021 will provide a bit more certainty for the new year.  Again, this looks to be a tempered approach, targeted to do enough now, leaving the chance for the Chancellor to do more later, should he need to.

Cash flow

“The old adage of “cash is king” was clearly on the Chancellor’s mind, as he extended the business loan schemes, as well as allowing VAT deferred to 31 March 2021 to be paid back over 11 payments interest free. This will be welcome, but businesses may yet be looking to HMRC for further support under its Time to Pay arrangements.”