Image copyright Andrew Parsons / No 10 Downing Street
The UK government has for the first time in history said it will step in and help pay people’s wages as a result of the economic slump caused by the coronavirus outbreak, and there is no limit on the amount that will be spent to cover the bill.
The new scheme announced by Chancellor of the Exchequer Rishi Sunak at the government's daily coronavirus update will apply to any company in the country.
The grant will cover 80% of any salary up to £2,500 a month
The scheme is intended to help business "pay people and keep them in work," said Sunak. The measures come as the government steps up its attempts to supress the spread of coronavirus by forcing the closure of restaurants, pubs, clubs, cafés and leisure centres which will place significant strains on this sizeable sector of the UK economy.
To further assist businesses the government says companies will not need to pay any VAT from now until the end of June, and will have until end of financial year to pay those bills.
"No business will pay VAT from now to mid June. You'll have until the end of the financial year to repay those bills. That's an over £30bn injection to businesses equivalent to 1.5% of GDP," said Sunak.
The self-employed have also seen the date of their July 2019 payment deadline delayed until January 2021.
"The employment retention package announced by Rishi Sunak is - by design - set at a good level for employees and in incentivising labour hoarding maximises the chances of a v-shaped rebound when social distancing measures come to an end," says Simon French, Chief Economist at Panmure Gordon.
In recognition that people are already losing their jobs, the government is increasing universal credit allowance by £1,000 a month which amounts to an extra £7BN of extra support through the welfare system
Support for those who rent accommodation was also announced.
"For renters, I’m announcing today nearly £1bn of support by increasing the generosity of housing benefit and Universal Credit, so that the Local Housing Allowance will cover at least 30% of market rents in your area," said Sunak.
The measures are unprecedented in scale in terms of UK government economic intervention and will go some way in softening the economic impact of the nationwide shutdown aimed at delaying the spread of coronavirus.
There was no discernible impact on the British Pound, but the currency had already been rallying in a concerted effort ahead of the weekend. However, one analyst tells us the measures could well be supportive of the currency over coming months.
"Rishi Sunak, presumably the new saviour of the UK economy," says Marc-André Fongern, Head of FX Spot & Options at Fongern Global Forex. "These measures are likely to breathe new life into the GBP over the coming weeks."
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