Rishi Sunak has pledged further financial help for UK businesses with extensions to his flagship furlough and emergency loan schemes as pandemic restrictions are extended and companies brace for a potentially disruptive end to the Brexit transition.
The chancellor on Thursday also set March 3 as the date for the next Budget, which is likely to be one of the toughest in years given the pressure to stabilise the public finances with additional spending cuts or tax increases.
The extension of help to employers reflects worries among many in government and business over whether vaccines will be rolled out to enough older and vulnerable people in time to lift many Covid-19 restrictions before the spring.
Mr Sunak acknowledged that the next few months would be unpredictable. “We know the premium businesses place on certainty so it is right that we enable businesses to plan ahead regardless of the path the virus takes,” he said.
In a flurry of announcements before parliament broke for Christmas, the chancellor confirmed plans to extend the UK’s £68bn coronavirus emergency loan schemes until the end of March. The programme, which includes the government’s £43.5bn coronavirus bounce-back loans scheme aimed at smaller businesses, was due to end in January.
The furlough scheme, which has been used to help pay the wages of almost 10m people unable to work because of Covid-19 restrictions, has been extended by a month until the end of April.
It pays 80 per cent of the wages of furloughed staff, has cost about £2.4bn in the past month and will now be in operation for an entire year, having been launched in April.
With companies facing the economic impact of tiered social curbs across the UK until the spring, ministers were keen to help support businesses that face a further few months with much-reduced or no revenue.
Business leaders forecast that the UK will see a surge in job losses and business failures as soon as the chancellor winds down the support schemes that have kept many companies going during the economic restrictions this year.
The intervention comes as ministers updated the tier system on Thursday, with some regions moving from tier 2 to tier 3, the toughest level in which cafés, pubs and restaurants must close except for deliveries and takeaways.
London was moved into tier 3 on Wednesday, prompting further frustration and anger in the hospitality industry.
Mr Sunak not only extended the bounce-back loans scheme but also the £19.6bn Coronavirus Business Interruption Loan Scheme and the £5bn Coronavirus Large Business Interruption Loan Scheme.
This would mean that businesses will have had support from government-backed loans for almost a year, with the programme having started in April.
Initially, the loan schemes were supposed to remain in place only until September. But they have already been extended until the end of January because of fears about the punishing economic damage inflicted by Covid-19 restrictions.
The extension will also provide timely support for companies through a potentially chaotic end to the Brexit transition period on December 31.
One person close to the discussions said the Treasury regarded the loan schemes, which have supported about 1.2m companies, as one of the easiest ways to extend support without devising a costly financial bailout.
Ministers have also considered limited sector-specific help for industries likely to be hardest hit by Brexit-related border issues from January.
The loan schemes carry guarantees from the government but are provided by banks, which means the upfront financial cost to the Treasury is low.
However, the extension will also exacerbate worries about the longer-term impact of the schemes, given concerns that many companies will struggle to repay their loans, and over the high risk of fraud from organised criminals. Official estimates suggest that up to £26bn could be lost in defaults and fraud.
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The loan schemes were designed to provide guarantees for banks to lend quickly and cheaply to struggling businesses during the pandemic. Bounce back loans carry a full guarantee from the government for up to £50,000, while the others have a guarantee that covers the lenders for about 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 delayed until after March.
Additional reporting by Chris Giles
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