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Economic impact of coronavirus: Gaps in support Contents

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Introduction

The Government’s response to the coronavirus

1.The coronavirus, and the Government’s response to limit its transmission, have had a hugely significant impact on the economy. Shops, cafes, restaurants, cinemas, theatres, offices and other places of work have shut, typically as a direct consequence of Government policy. Those faced with losing their income from this closure were often unable to find other jobs, since the lockdown was economy wide.

2.The Prime Minister in his 23 March speech acknowledged the adverse effects that the restrictions introduced by the Government were having on the economy, saying : “I know the damage that this disruption is doing and will do to people’s lives, to their businesses and to their jobs.”2

3.The Chancellor has frequently stated that he “would do whatever it takes” to protect jobs and incomes and keep as many people as possible in employment.3 He announced significant financial support to businesses in the form of loans and grants and the deferral of taxes and some extra support through the welfare system. Specific interventions were introduced targeted at protecting jobs and keeping people in employment via the introduction of two support schemes: the Coronavirus Job Retention Scheme (CJRS) and the Self-Employment Income Support Scheme (SEISS).

4.The CJRS was first announced by the Chancellor on 20 March 2020. The Chancellor described it as follows:

Any employer in the country—small or large, charitable or non-profit—will be eligible for the scheme.

Employers will be able to contact HMRC for a grant to cover most of the wages of people who are not working but are furloughed and kept on payroll, rather than being laid off.

Government grants will cover 80 per cent of the salary of retained workers up to a total of £2,500 a month–that’s above the median income.

And, of course, employers can top up salaries further if they choose to.

That means workers in any part of the UK can retain their job, even if their employer cannot afford to pay them, and be paid at least 80 per cent of their salary.

The Coronavirus Job Retention Scheme will cover the cost of wages backdated to March 1st and will be open initially for at least three months - and I will extend the scheme for longer if necessary.4

5.On 15 April, the Treasury published the direction creating the CJRS.5 This set the date on which employers had to report to HMRC on their employee numbers for payroll purposes to 19 March 2020. On 17 April, the Chancellor announced the first extension of the CJRS, which would now run until the end of June.6 On 12 May, the Chancellor announced that the CJRS would remain open until October 2020. From August 2020, firms would be expected to contribute to the furlough of their staff,7 but they would also now be able to furlough staff on a part-time basis.8 On 29 May, the Chancellor announced more details of employers’ contributions and more flexibility for employers in making furlough arrangements.9

6.The SEISS was announced on 26 March 2020. This scheme allows the self-employed to receive up to £2,500 per month in grants for at least three months. At the time of its announcement, the intention was that payments would be made as a single lump sum instalment covering all three months to be paid at the beginning of June.10 However, SEISS opened ahead of schedule on 13 May 2020.11

7.A person qualifies for SEISS if they:

• Make more than half of their income from self-employment, up to £50,000 in profit per year
• Have submitted a tax return for the tax year 2018–19 (they had until 23 April to do so), and traded in the tax year 2019–20
• Are trading in 2020–21 when they apply (and/or intend to continue to trade in the 2020/21 tax year) and have been financially adversely affected by the Coronavirus outbreak.12

8.These schemes come at a significant cost to the Exchequer. The most recent figures for the CJRS show that at midnight on 7 June, claims had been made by 1.1 million employers for furloughing 8.9 million jobs at a cost of £19.6 billion. For SEISS, by midnight on 7 June, 2.6 million claims had been made for £7.5 billion.13

Our inquiry

9.Given the scale, speed and iterative nature of the Government’s response, we have had to be swift in our scrutiny. In our evidence sessions on the Spring Budget 2020 we asked the Office for Budget Responsibility, economists and the Chancellor about the Government’s response to the emerging threat.

10.Following our evidence session with the Chancellor we then launched the first stage of our inquiry into the Economic impact of Coronavirus. Our call for evidence, issued on 18 March, focused on the speed, effectiveness and reach of the Government’s and Bank of England’s immediate financial responses to coronavirus. We received over 16,000 emails from members of the public and other interested parties, such as trade bodies and unions. We would like to thank all those who took the trouble to contact us on such an unprecedented scale.

11.We have also undertaken a significant programme of oral evidence sessions, continuing when the House was not sitting, and seeing twelve panels of witnesses in ten different hearings. We are grateful to business and financial services, economists, representatives from the Bank of England, the FCA, HMRC and the Chief Secretary to the Treasury for giving evidence to us.

12.Alongside our oral evidence sessions, we have also engaged in extensive correspondence to press the Government to improve its response.14

13.The Government has listened to some of our key concerns. On 24 March, we wrote to the Chancellor urging help for the self-employed,15 and on 26 March he announced the SEISS. On 31 March we heard from the CBI and TUC on the “stranded middle” (businesses above the cap for the Business Interruption Loan Scheme16 but not big enough for the Bank of England’s Covid Corporate Finance Facility17) and banks requiring personal guarantees for small business loans. On 3 April the Government announced the Coronavirus Large Business Interruption Loan Scheme18 and a ban on personal guarantees for business loans under £250,000.19 We continued to hear that loans were not getting through to businesses quickly enough and, as well as pressing lenders to play their part,20 we urged the Government to consider guarantees.21 On 27 April the Government launched the new Bounce Back Loan scheme,22 which aimed to help small businesses access finance faster and is 100 per cent guaranteed by the Government.

14.However, the Government has failed to address our concerns about many other individuals who are continuing to miss out on financial support. On 2 April we published a summary of the evidence so far received.23 On 8 April, we published a second high level summary of evidence, highlighting a number of ongoing issues with the Government’s schemes.24 We wrote to the Treasury asking it to consider these summaries and the action it would take to help those who had fallen through the gaps.25 The Chancellor’s reply, received on 20 April 2020, set out the Government’s support, and provided a rationale for the package of support as designed, but did little to offer hope to those facing financial hardship because they do not meet the eligibility criteria for the Government’s schemes.26

This report

15.This short report focusses on the key gaps that remain in the schemes that offer income support, directly or indirectly, to households. As we move into an extended period of support not only will these gaps persist, but the effect on differing households will grow wider.

16.We have already launched the second phase of our inquiry, examining the operational effectiveness, cost and sustainability of the Government’s and Bank of England’s support packages, the impact on the economy and different sectors, the implications for public finances, and how the Government can work towards a sustained recovery.27 Emerging issues from the second stage include the impact of the crisis on the young, including through youth unemployment, the debt burden on companies and how to target any Government stimulus. However, as we all start to focus on this next stage and the recovery, we want to ensure over a million people who have fallen through the gaps in support schemes are not forgotten.

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