Coronavirus » Stimulus packages outlined by UK government in response to coronavirus

Stimulus packages outlined by UK government in response to coronavirus

In response to coronavirus, the UK government has introduced a number of fiscal and monetary policies to help businesses during this crisis

Coronavirus has effectively shuttered large sections of the economy as people are advised to stay at home and to stop any non-essential travel. Due to such sudden and profound shock, the UK government has put numerous polices in place in order to help see businesses through these exceptional circumstances.

Tax, grants and loans

  • The 2020 Budget unveiled on March 11 introduced £30bn in new spending with £12bn specifically earmarked for sustaining businesses during the spread of coronavirus. As the virus shutdown more of the economy, billions more have been allocated
  • Coronavirus Job Retention Scheme (CJRS): The government will pay 80 percent of salaries of employees that have been furloughed, up to £2,500 per month. On March 26, the scheme was extended to self-employed workers
    • The government has extended the eligibility date to those employed as of March 19. Previously to qualify, employees needed to be on the payroll as of February 28
    • CJRS has now been extended until the end of October
    • The government has outlined the phase-out of the CJRS, as follows:
      • Furloughed staff may return to work on a part-time basis from July 1 and businesses will need to pay wages while the furloughed employee is working
      • August: Employers will be responsible for paying National Insurance and pension contributions
      • September: The government will reduce the CJRS to 70 percent of salaries with employers responsible for paying 10 percent
      • October: The government will continue to reduce the CJRS to 60 percent of salaries and employer contribution will rise to 20 percent. October is the last month of the CJRS
    • Self-Employment Income Support Scheme has been extended an additional 3 months. From August onward, a second one-time payment grant can be applied for covering 70 percent of average profit for 3 months. This is capped at £6,570.
  • Statutory sick pay: For SMEs smaller than 250 employees, the government will reimburse the SSP up to two weeks of employees who fall ill due to coronavirus.
    • SSP is currently £94.25 per week
  • Coronavirus Business Interruption Loan Scheme (CBILS)
    • SMEs with a turnover of less that £45m can be eligible for a loan up to £5m for up to six years
    • The government will guarantee 80 percent of each loan and cover interest payments for the first 12 months (Borrower remains fully liable to the debt)
    • Businesses must “have a borrowing proposal which the lender would consider viable, were it not for the current pandemic”
    • On April 1, banks were given additional instructions that prevented them from asking for personal collateral and charging high interest rates
    • Three challenger banks have been added to the list of approved CBILS lenders
  • Coronavirus Large Business Interruption Loan Scheme (CLBILS)
    • This scheme provides loans to businesses with turnover between £45m and £500m
    • Like CBILS, the government guarantees 80 percent of the loan (Borrower remains fully liable)
    • As of May 26th, the loan limit has been increased from £50m to £200m
    • Companies who borrow more than 50m will be subject to restriction on dividend payouts, share buybacks and senior-level pay.
  • Bounce Back Loan Scheme (BBLS)
    • The government will back loans of up to £50,000 for ‘small firms’
    • Like CBILS, the government will cover interest payments for the first 12 months
      • Interest rate after is set at 2.5 percent
      • Paid over a six year period, or done earlier without paying a fee
    • The loan is 100 percent back by the government, up from 80 percent when the scheme was introduced and compared to CBILS
  • Coronavirus Corporate Financing Facility
    • BoE will buy short-term debt (commercial papers) from large firms
    • Firm must have at least an A3 credit rating or equivalent from a major credit rating agency as of March 1
  • A 12-month business rates holiday for all retail, hospitality, leisure and nursery businesses in England
  • VAT deferment: Payments between March 20 and June 20 have been deferred, though are to be paid by the end of 2020-2021 fiscal year
  • HMRC’s time to pay service: Outstanding tax may be deferred on a case-by-case basis
  • Commercial tenant eviction: Commercial tenants are protected from eviction until at least June. 30 (Note: not a rental holiday, outstanding balance must still be paid)
  • Changes to wrongful trading: The government has proposed changes to the wrongful trading provision in UK insolvency law
    • A temporary moratorium on restructuring, where businesses cannot be put into administration by creditors
    • Businesses can continue to pay staff and suppliers even if they are at risk of becoming insolvent

Monetary policy

  • Interest rate cuts: The Bank of England has made two emergency cuts, first on March 11 – dropping the rate from 0.75 to 0.25 percent, and again on March 19, to the current rate of 0.1 percent
  • Injection of £200bn into the economy
  • Reduction in financial resources (collateral) needed when UK businesses apply for loans
  • UK banks will not pay dividends from 2019 that have not been paid out and no new dividends for 2020
    • The UK’s five largest banks have suspended dividend payments until 2021
    • BoE estimates this will free up £190bn for use in lending to businesses
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