With government furlough schemes gradually being phased out, the government is faced with the difficult task of protecting a fragile and vulnerable economy through the difficult times ahead especially once the safety nets currently provided are no longer available. About 9 million people have been covered by the Coronavirus Job Retention Scheme so far and if a significant proportion of those find at the end of it all that they have no job to go back to, that will clearly be bad for them and also bad for the economy as a whole. This is clearly behind the thinking of Chancellor Rishi Sunak who this week announced some significant measures in an attempt to protect some at least of the jobs that might otherwise be lost as a result of the pandemic.
One step that the Chancellor announced was what is in effect a £1,000 one-off Coronavirus Job Retention bonus for furloughed staff who return to work. This is a useful measure though probably one that is unlikely to make a significant difference to the decision of some employers about whether or not to reengage staff; nevertheless it is a welcome signal and it is worth bearing in mind that in the unlikely event that every furloughed employee came back to work it would cost the Treasury an eye-watering £9.4 billion. The 'catch' such as it is is that those employees must be retained until at least January 2021 and the bonus will not be paid until February. This means that any employees retained will have either have been on furlough or in a job for nearly a year after the pandemic began which will help to soften the blow even for those who are subsequently made redundant. To qualify, employees must earn at least £520 per month (an average from November 2020 to January 2021) and have been previously furloughed.
The Chancellor also introduced a new scheme for employers to take on new employees, particularly those amongst the so-called 'Covid generation', that is those between 18 and 24 years of age who in many cases have suffered badly because of the way that the pandemic has hit various parts of the 'gig economy'. With many of those jobs already lost, something is needed to take their place, especially as in many cases ongoing social distancing measures will limit a return to normality in certain sectors any time soon (e.g. bars, restaurants, concerts etc.). The so-called Kickstart Scheme will see the government pay the wages of those people who are employed under its terms for six months. This will be based on the minimum wage and will amount to a grant worth about £6,500. There will be no cap on the number of places that the government will fund under the scheme. Other measures have been taken which will impact on some of these younger people indirectly through their effect on parts of the gig economy; these include a reduction of VAT for those businesses working in hospitality and tourism from 20% to 5% until 2021 and a one-off scheme for diners which will give them 50% off their bills (up to a limit of £10 per head) for certain nights of the week in August 2020. These may help to stimulate activity in these sectors which should also help the job situation at least on a temporary basis.
These measures have been welcomed – though not everyone is convinced and some reputable organisations such as the Institute for Fiscal Studies found that the £1,000 retention bonus was in particular poorly targeted. Nevertheless the initial reaction to the announcement suggests that these measures amount to a greater injection than foreseen; in total they could add a bill of up to £30 billion to an already under pressure Treasury budget (though critics point out that Germany's package of measures amounts to about €130 billion by comparison). What they do though is buy time; that is very welcome but it does not amount to a permanent fix to the major problem of protecting old jobs and creating new ones. A great deal is riding on the more detailed budget statement from the Chancellor that is due in October. This will give us a clear idea of where things are heading on a longer-term basis. The younger generation are likely to be stuck with the long-term impact of dealing with the pandemic's economic fallout for years and decades ahead; and indeed in fairness the under-40s have now had to face two massive economic downturns in a decade following the 2008 financial crisis. In some quarters, younger people are no longer called 'millennials' but have been dubbed 'recessionals' instead. It is important that they are given as much help as possible given the fact that it is they ultimately who will have to foot the bill well into the future.
Wayne Bartlett is an author for accountingcpd. To see his courses, click here.
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