Rishi Sunak today announced another £4.6billion of bailouts for lockdown-stricken businesses as economists warned of the ‘colossal’ hit from the surging pandemic.
The Chancellor declared that venues hammered by Boris Johnson’s dramatic decision will get one-off grants of up to £9,000 to keep them afloat over the next seven weeks.
Some 600,000 premises across the UK are set to receive the cash, while another £594million is being pumped into a ‘discretionary fund’ to support other firms affected.
Mr Sunak also pointedly refused to rule out extending the massive furlough scheme again beyond the end of April, merely saying he would ‘take stock’ at the Budget in March.
However, businesses warned that the package is not enough, amid pressure for VAT and rates relief to be kept in place to stop a wave of bankruptcies.
The latest huge intervention came amid fears that the lockdown will slash GDP by up to 10 per cent in every month it is imposed – although the respected IFS think-tank said this morning that the impact might be lower as businesses have adapted since the first squeeze in March.
It will also raise alarm at the state of the government’s finances, with IFS director Paul Johnson saying the scale of the economic damage was the worst ‘in the whole of history’. Public sector borrowing could hit £400billion this year, with Mr Sunak already having warned of a reckoning later to balance the books.
Rishi Sunak declared that venues hammered by Boris Johnson’s dramatic decision will get one-off £9,000 grants to keep them afloat over the next seven weeks
Coronavirus is thought to have inflicted the worst hit to GDP since the Great Frost of 1709
Government borrowing could be close to £400billion this year and is set to continue at eye-watering levels into the mid-2020s, as this OBR chart shows
There will be fears that the UK is now tracking the downside scenario set out by the OBR watchdog at the end of November, after mutant coronavirus forced fresh lockdown
How the coronavirus costs rack up for the government
£127billion for NHS and other public services to combat the pandemic
£71billion on grants and loans to support businesses
£86billion on furlough and self-employed job support schemes
Businesses have been voicing despair about the latest grim development in the coronavirus crisis, with Mr Johnson addressing the nation last night to plunge England into a fresh lockdown.
Mr Sunak had already revealed last month that the furlough scheme was being extended again until the end of April – adding at least another £5billion to the eye-watering £280billion direct costs of the pandemic.
Lost revenues mean the hole in the government finances is even bigger, with the debt mounting now well over £2trillion.
Even though debt interest payments are incredibly low at the moment, the OBR watchdog warned in November that longer-term ‘scarring’ meant that the government would need to fill a funding gap of up to £46billion with tax rises and spending cuts by 2025.
Adding a penny to the basic rate of income tax only brings in roughly £6billion.
That situation will be made significantly worse by the crippling new lockdown.
The March restrictions were estimated to smash 10 per cent off GDP every month.
And although the figure is expected to be lower this time as the economy has adjusted, the costs will still be massive.
The Treasury said the new one-off grants will be linked to business rates, with payments of £4,000 for businesses with a rateable value of £15,000 or less, £6,000 for businesses with a rateable value of between £15,000 and £51,000, and £9,000 for businesses with a rateable value of more than £51,000.
Announcing the latest bailout this morning, Mr Sunak said: ‘The new strain of the virus presents us all with a huge challenge – and whilst the vaccine is being rolled out, we have needed to tighten restrictions further.
‘Throughout the pandemic we’ve taken swift action to protect lives and livelihoods and today we’re announcing a further cash injection to support businesses and jobs until the Spring.
‘This will help businesses to get through the months ahead – and crucially it will help sustain jobs, so workers can be ready to return when they are able to reopen.’
Speaking to reporters afterwards, he repeatedly refused to say whether furlough could be kept in place beyond the end of April.
‘We’re having a budget early in March, and all of our economic support, including the announcement today, runs through to this spring,’ Mr Sunak said.
‘So I think the budget in early March is an excellent opportunity to take stock of the range of support that we’ve put in place, and to set out the next stage, our economic response to coronavirus at that particular time.’
A further £594million is being made available for local authorities and the devolved administrations to support other businesses not eligible for the grants.
The Treasury said the new one-off grants are in addition to billions of existing business support, including grants worth up to £3,000 for closed businesses, and up to £2,100 per month for once businesses reopen.
But businesses warned they were not enough, and are demanding VAT and tax relief is extended throughout 2021.
Alarm is growing at the state of the government’s finances, with IFS director Paul Johnson saying the scale of the economic damage was the worst ‘in the whole of history’
Furious small business owners say their non-essential stores could go bust under a third national lockdown – with one desperate pub owner revealing he has gone nearly a year with no income (file image)
Prime Minister Boris Johnson last night plunged England into a third national lockdown – prompting outcry amongst business owners in need of support
How much does the furlough scheme cost?
The Treasury estimates costs of a billion pounds a month for every million workers on the furlough scheme.
The Bank of England has said it expects 5.5million people to be furloughed, suggesting a bill of approximately £5.5billion a month.
The Resolution Foundation think-tank says the monthly cost could be even higher at £6.2billion a month.
Many hard-hit small business owners say their shops could be facing ruin under the new lockdown which will continue until at least February half-term. Mr Johnson also failed to announce any financial support measures in his address.
Kate Nicholls, chief executive of trade group UKHospitality, warned the new measures are ‘only a sticking plaster’ for immediate issues, and called on the Chancellor to announce a longer-term economic plan.
‘This is obviously a very positive step to keep businesses afloat in the immediate term and, for that reason, must be welcomed,’ Ms Nicholls said.
‘However, while this announcement is most welcome, make no mistake that this is only a sticking plaster for immediate ills – it is not enough to even cover the costs of many businesses and certainly will not underpin longer-term business viability for our sector.
‘To address the inevitable and existential challenges that hospitality faces, we need confirmation of extensions to the business rates holiday and of the 5% VAT rate.
‘On its own, today’s support is not enough.’
Mayor of London Sadiq Khan welcomed the additional measures but called for more support, including an extension of the furlough scheme until the vaccine is rolled out widely and restrictions are lifted.
‘It should have come sooner and it won’t replace the revenue lost over the vital Christmas period, but it should help many struggling retail, hospitality and leisure businesses stay afloat until spring,’ he said.
‘Clearly more help is needed – including an extension to the business rates holiday and the VAT relief scheme, targeted support for night-time economy businesses which have been forced to stay shut since March, and more support for those who are self-isolating.’
Adam Marshall, director general of the British Chambers of Commerce, said: ‘While this immediate cash flow support for business is welcome, it is not going to be enough to save many firms.
‘We need to see a clear support package for the whole of 2021, not just another incremental intervention.’
Richard Burge, chief executive of the London Chamber of Commerce and Industry, said: ‘These grants will be welcomed by businesses who have been forced to close, and particularly those in London with a rateable value above £51,000 – who have previously not been able to access such grant support.
‘But the Government need to demonstrate they understand that this remains a marathon, it’s not yet the final sprint.
‘As such, we need to see the Chancellor is looking beyond spring.
‘Extension of the VAT and business rate relief periods would show Government understand that our economy will not fully recover until vaccination rollout is complete and London’s tourism and global economy recovered – which will be beyond spring realistically.’