Covid-19: UK to guarantee wages for up to 3 months

The British government unveiled an income guarantee for workers affected by the coronavirus pandemic covering up to 80% of salaries in a socialist gamble unthinkable a week ago.

Finance Minister Rishi Sunak said companies and organisations would be able to apply for a grant to cover the wages of people who are not working but who had not been been laid off. The cash, up to a maximum of £2500 a month, would be available for an initial three months, he said.

He added that was deferring the next quarter of value added tax payments due from businesses, meaning there would be none until June. Firms would have until April 5, 2021 to repay that bill, Sunak said, adding that the measure would inject £30bn into the economy.

The government also extended the interest free period on its coronavirus business interruption loan scheme to 12 months from six months and introduced a tax deferral for self employed workers who were due to make payments on account in July.

The wages cover will be backdated to the start of March and Sunak insisted he would extend the scheme for longer "if necessary". There would be "no limit" on the funding available to pay people's wages, he added.

Sunak had been under pressure to do to guarantee incomes more only days after announcing a £350bn bailout package of loans and government grants to help businesses cope with impact of the pandemic. There was still a lack of clarity on Friday as to how workers on zero-hours contracts and the self-employed would benefit from the latest cash allocation.

He called on employers to stand by their workers during the crisis. "I know it's incredibly difficult out there. The government is doing its best to stand behind you and I'm asking you to do your best to stand behind our workers," he said.

Business lobby group the Institute of Directors said warned that the "perilous position of the self-employed can’t be ignored".

"While steps to ease the tax burden will provide relief, there are many entrepreneurial people out there who had good businesses last month, but for whom demand has now completely disappeared," it said in a statement.

HOUSEHOLDS MAY NEED MORE HELP

Melissa Davies, an economist at Redburn, said it was "almost certain more will be needed to protect households specifically".

"The next logical step from here would be consumption vouchers or cash grants to households. The UK can afford this and shouldn't be squeamish about running a much larger deficit. It’s much better to make a proactive decision to protect corporate cash flows and household incomes, rather than end up with a much larger deficit by default because domestic demand collapses," Davies said.

AJ Bell chief investment officer Kevin Doran said the plan was similar to that of the Danish government, which offered to pay 75% of salaries at private companies.

“With the furlough funding scheme running at an estimated cost of £45bn over the three month period, the strategy puts enormous weight on the assumption that the UK will have ‘turned the tide’ on the virus over the next 12 weeks. Added to the other measures, the bill could come in closer to £60bn in the next quarter," he said.

Doran said the strategy was "high risk and high stakes" given the bill could run into the hundreds of millions of pounds if the hibernation of UK workers ran into six or nine months in an economy where tax receipts would be significantly down already.

“Positively, it’s a step on from the playbook of the last crisis. Given the production chasm about to open up in the UK economy, it was important to give households some form of certainty over either income or relief from their expenses. Today’s plan does that and moves us away from the trench warfare tactics of the last crisis against an enemy that has gone airborne," he said