What does the Summer Statement mean for small business?
Chancellor Rishi Sunak has announced a package of measures to help small businesses survive the coronavirus pandemic, as the second phase of government action.
Mr Sunak unveiled cash grants of £1,000 for each furloughed employee a business takes back, a new £2bn jobs scheme aimed at bringing in young people into work, and VAT being slashed to 5 per cent for hospitality and attractions businesses.
“It will give businesses the confidence to retrain and hire this autumn,” Mr Sunak announced in the House of Commons this afternoon.
Job Retention Bonus
Mr Sunak announced a £9bn initiative to reward businesses that bring furloughed employees back into work.
Any small business that takes back a furloughed employee will be given a £1,000 grant for each worker, providing they are still in employment by the end of January. Workers must have been continuously employed and earn an average of more than £520 per month in November, December and January.
Mr Sunak said: “If you stand by your workers, then we will stand by you.”
Reacting to the announcement, Howard Kennedy head of employment law Jane Amphlett said: “The bonus is likely to provide an incentive for employers to delay making decisions on some redundancies- given the amount of the bonus particularly in respect of the lower paid employees [who earn above the threshold of £520 per month]. And that breathing space will save jobs if the outlook from February looks brighter than November.”
And Rustom Tata, chairman of city law firm DMH Stallard and head of its employment group, said that a one-off payment of £1,000 to keep someone employed until the end of January was largely inconsequential for most employers considering whether or not to go ahead with substantial redundancies.
Kickstart jobs scheme
As expected, chancellor Rishi Sunak has announced a £2bn scheme for small business owners to hire young people as part of his Summer Statement.
The new Kickstart scheme will help half a million 16-to-24-year-olds claiming Universal Credit to find work, as the government will directly pay the National Minimum Wage for 25 hours a week for six months, giving small business owners a £1,000 grant to cover admin costs.
Each young Kickstart worker will receive £5,000 from the government over half a year, with small business owners able to top up minimum-wage pay packets.
The first jobs will be taken up in the autumn and the scheme will run until December 2021, though it is likely to be extended if it proves successful.
Small businesses can apply to be part of the traineeship scheme from next month.
The Treasury estimates that over 700,00 school leavers will come into the jobs market when they leave school this year, and they find it 2.5x more difficult to find their first job.
Mr Sunak said that young people “bear the brunt” of recessions and are at particular risk from the Covid-19 crisis because they work in sectors “disproportionately hit” by lockdown, such as bar work and waitering.
The Summer Statement is seen as the second part of a three-stage plan to rescue the economy, which began with the coronavirus business interruption loan scheme and bounce-back loans and the coronavirus job retention scheme, and will be completed in the autumn with a full Budget and spending review.
Rishi Sunak confirmed that the government will be paying small business owners £2,000 to take on other 16-to-24-year olds as unpaid trainees.
Small businesses that offer training for young people aged between 16 and 24 will be given cash “bonuses” of grants worth £2,000 per youth up to a maximum of £10,000 per firm.
The government will also pay £1,500 for every new apprentice above 25 hired.
This unpaid on-the-job training is seen as a gateway to an apprenticeship and, ultimately, full-time work.
Mr Sunak said that 91 per cent of traineeships turn into full-time jobs. The £111m scheme is the first-time small businesses will receive direct government subsidies for taking on trainees and is expected to help around 45,000 young people outside of the Kickstarter scheme.
However, Michael Buckworth, managing director of start-up specialist law firm Buckworths warned that the proposal to pay for 25 hours’ work a week for six months at minimum wage for new traineeships risks locking young people into low paid, low hours jobs with little career progression.
Buckworth said: “There is a risk that businesses conclude that the cost of training and supervising trainees outweighs the benefits and either fail to participate in the scheme, or use the trainees as cheap labour for six months.”
Welcoming both the Kickstart scheme and the traineeship incentive, Federation of Small Business national chairman Mike Cherry said: “Small businesses are disproportionately likely to employ young people, as well as people who were previously out of work, and therefore the government must implement its £2bn Kickstart Scheme in such a way as to allow smaller employers to play their part fully. Small businesses must not be left waiting in line behind big corporates when they could get people to work now.”
VAT cut to 5% for hospitality and leisure
The chancellor announced he was cutting VAT cut from 20 per cent to 5 per cent for over 150,000 businesses in the hospitality and attractions sectors in a £4bn initiative. The VAT cut will come into effect on Wednesday, July 15. Hotels, restaurants, accommodation and attractions, including cinemas, will all qualify for the new 5 per cent VAT rate.
VAT was previously cut from 17.5 per cent to 15 per cent between 1 December 2008 and 31 December 2009 to stimulate consumption to cope with the 2008 financial crisis. Three years later it was hiked to 20 per cent by the Coalition government.
Over two million people work in the hospitality and tourism, 1.4m of whom have been furloughed since lockdown.
Eating out subsidy
Pubs and restaurants will be able to claim back up to £10 per person from customers eating out between Monday and Wednesday, with the government subsidising meals out by 50 per cent throughout August.
Warning of grave times ahead, Mr Sunak said that the UK economy has shrunk by 25 per cent in just two months, wiping out 18 years of growth.
“We face profound economic challenges … the greatest recession ever known, according to the IMF,” Mr Sunak warned.
Defending the government decision to wind down the Coronavirus Job Retention Scheme, Mr Sunak said “the longer people are on furlough, the more their skills will fade and the harder they will find it to get a job”.