Chris Sanger, EY’s Head of Tax Policy, comments:
“Facing pressure to help those businesses which are not forced to close under lockdown restrictions but have seen a drop in income, the Chancellor has today reformed the Job Support Scheme (JSS) even before it starts next month, as well as making other measures more generous.
“The Chancellor’s changes today:
- Reduced the minimum hours an employee must work to 20% (down from 33%)
- Addressed the flaw in the previous plan which meant that workers furloughed by businesses could cost the employer much more per hour than those retained on full time. Under the new version of the scheme, the employer will only pick up 5% of the hours not worked with the Government paying 62%. The employee still bears a loss of 33% of wages for the hours they do not work. Although not mentioned, it is presumed that employers will still have to bear the cost of employers NIC and pensions contributions.
“For those employees who would have been covered by the original version of this scheme, this change leaves them in the same position (ie. receiving 2/3rd of their pay for their furloughed time). However, it radically shifts the burden of the time not worked from the employer to the government. The relatively small amount that the employer is left to cover (5% plus NICs and pension contributions) may be the Chancellor’s way of seeking to avoid supporting “zombie jobs”, ie. jobs that are not sustainable in the longer term.
“This may also support more jobs, as the employer needs now to justify retaining a fulltime employee for only one day per week (or 20% of their time) rather than needing them to work a third of their usual hours in order to qualify. A fulltime employee working one day a week would receive almost three quarters of their usual wage as a result of today’s changes.
“This expansion of the JSS applies to all business, in whatever Tier, facing higher restrictions. It is not clear what a business will need to show in order to be able to demonstrate that it has been affected by the higher restrictions.
“At the same time, the Chancellor announced new support grants for businesses affected by restrictions but not legally forced to close.
“The new funding will support cash grants of up to £2,100 per month, primarily for businesses in the hospitality, accommodation and leisure sector which may be adversely impacted by the restrictions in high-alert level areas. These grants will be available retrospectively for areas whch have already been subject to restrictions, and come on top of the higher levels of support given to Local Authorities moving into Tier 3.
“The level of grant is set at 70% of the previously announced grants for businesses that are forced to close. It will be up to Local Authorities to determine which businesses are eligible for grant funding in their local areas, and what precise funding to allocate to each business.
“This approach of using grants focussed on businesses continues a shift away from the sole use of the JSS. The Chancellor has chosen not to expand the application of the JSS Extension, which applies to those forced to close, but instead to extend only the grant element of that package. The greater use of grants may be in recognition of the need to take into account more factors than employment costs and to provide support to a wider group of affected businesses.
“Finally, the Chancellor doubled the support he proposed to give to the self-employed from November to 40% (up from 20%), meaning the maximum grant will go up from £1,875 to £3,750. Grants are available for all self-employed people (all tiers) who've stopped trading or have a significant fall in trade. Two taxable payments have been promised to cover the period between November 20 and April 2021. The amount of the second payment is still subject to review.
Closed businesses unaffected
“One area unaddressed today is the treatment of workers who are unable to work at all, due to the closure of their premises. In this situation, the worker will still only receive two thirds of their wages. This will put them at a disadvantage to fulltime workers who are able to work one day and would receive almost three quarters of their usual wages.
“In this latest announcement, Rishi Sunak has once again demonstrated his agility in the face of the changing demands of the pandemic and his desire to limit the economic impact on all UK businesses. He has shown his ability to adapt, changing the new system amended earlier this month, even before its implementation. However, the question on many commentators’ lips will be whether yet another iteration of the Furlough will be needed in the near future.”