UK Business and Economic Updates
Sign up for myFT Daily Digest to be the first to hear about UK business and economic news.
Rishi Sunak has promised more financial aid for UK companies with extensions to his flagship license and emergency loan plans as pandemic restrictions are extended and companies prepare for a potentially disruptive end to the Brexit transition.
On Thursday, the chancellor also set March 3 as the date for the next budget, which is likely to be one of the most difficult in years given the pressure to stabilize public finances with additional spending cuts or tax increases.
The extension of aid to employers reflects the concerns of many in government and businesses about whether vaccines will be rolled out to enough older and vulnerable people in time to lift many Covid-19 restrictions before spring.
Mr. Sunak acknowledged that the next few months would be unpredictable. “We know that premium companies rely on certainty, so it is okay to allow companies to plan ahead regardless of which route the virus takes,” he said.
In a series of announcements ahead of the Christmas breakup of parliament, the chancellor confirmed plans to extend the UK’s £ 68bn coronavirus emergency loan plans until the end of March. The program, which includes the government’s £ 43.5 billion coronavirus recovery loan scheme aimed at smaller businesses, was due to end in January.
The leave plan, which has been used to help pay the salaries of nearly 10 million people who are unable to work due to Covid-19 restrictions, has been extended by one month until the end of April.
It pays 80 per cent of salaries for staff on leave, has cost around £ 2.4bn in the past month and will now be in operation for a full year, having been launched in April.
With companies facing the economic impact of staggered social restrictions across the UK until spring, ministers were eager to help support companies facing a few more months with little or no revenue.
Business leaders forecast that the UK will see an increase in job losses and business bankruptcies as soon as the Chancellor removes the support schemes that have kept many businesses running during this year’s economic tightness.
The intervention comes as ministers updated the tier system on Thursday, and some regions went from tier 2 to tier 3, the hardest tier at which cafes, pubs and restaurants must close, except for deliveries and takeout.
London moved to Level 3 on Wednesday, sparking further frustration and anger in the hotel industry.
Sunak has not only extended the recovery loan scheme, but also the £ 19.6 billion Coronavirus Business Interruption Loan Scheme and the £ 5 billion Coronavirus Large Business Interruption Loan Scheme.
This would mean that companies will have been supported by government-backed loans for almost a year, and the program began in April.
Initially, the loan schemes were supposed to remain in effect only until September. But they have already been extended until the end of January due to fears about the punishing economic damage inflicted by the Covid-19 restrictions.
The extension will also provide timely support to businesses through a potentially chaotic end to the Brexit transition period on December 31.
A person close to the discussions said the Treasury viewed the loan schemes, which have supported about 1.2 million businesses, as one of the easiest ways to extend support without devising a costly bailout.
Ministers have also considered limited sector-specific aid for industries likely to be the hardest hit by Brexit-related border issues starting in January.
The loan schemes have government guarantees, but are provided by banks, which means that the initial financial cost to the Treasury is low.
However, the extension will also exacerbate concerns about the schemes’ long-term impact, given concerns that many businesses will have difficulty repaying their loans and the high risk of fraud from organized crime. Official estimates suggest that up to £ 26bn could be lost to defaults and fraud.
Coronavirus trade update
How is the coronavirus affecting markets, businesses, and our daily lives and workplaces? Stay informed with our coronavirus newsletter.
sign up here
The loan schemes were designed to provide guarantees for banks to quickly and inexpensively make loans to distressed businesses during the pandemic. The repossession loans have a total government guarantee of up to £ 50,000, while the others have a guarantee that covers the lenders for approximately 80 per cent of the value of the loan.
The government is also working on a long-term successor to the three schemes, which is now expected to be postponed until after March.
Additional reporting by Chris Giles