This has been a week like no other, and we’ve seen a raft of announcements on measures from both the UK Government and the Scottish Government to try and delay the spread of COVID-19 and to help cushion the severe impact that those restrictions will have on households and businesses. These are unprecedented announcements, of a type and scale not seen before in Britain.
Devolution means of course that we have two governments who are announcing measures that impact on Scottish business and daily life. Some of the measures announced by the UK Government impact on Scotland, but others require the Scottish Government to decide how to use any consequentials triggered by UK announcements. In many cases, we’ve seen very similar policy announced north of the border albeit translated slightly to reflect differences in existing policy design.
Here is a round-up of what has been announced so far in relation to COVID-19 that will impact firms and individuals in Scotland.Advice and support for those who have symptoms and those who live in the same property
The advice coming from ministers and public health officials across the UK has been clear since the start of this week. Anyone with virus symptoms must self-isolate for seven days and people who live in the same household must self-isolate for 14 days in case they also develop the virus.
The financial support to allow people to do this comes via sick pay. Many employers have their own sick pay schemes but others will offer statutory sick pay (SSP). As this relates to work regulation, a reserved policy area, UK Government announcements here apply to Scotland.
The current amount is £94.24 a week, and you can receive it for 28 days. From the 13th of March SSP is available to those eligible from day one for all those who are self-isolating due to COVID-19 (for other illness the 4-day threshold remains).
Eligibility has been raised as an issue for many. You need to be earning an average of at least £118 a week, and be classed as an employee. This means that some people on zero-hours contracts may be covered if they earn enough, but those who are classified as self-employed (i.e. many gig-economy workers) will not be able to access it. However, the new announcements made on the 20th March (Friday) mean that the amounts available through UC for the self-employed will be equivalent to Statutory Sick Pay levels.
For people who are receiving social security benefits, but cannot attend required appointments or search for work due to requirements to self-isolate, they will not receive sanctions and will have some of the requirements on them reduced. Self employed people on Universal Credit who are required to self-isolate will not have the Minimum Income Floor (assumed amount you have to earn to be eligible for benefit payment). Although social security is part devolved, these announcements refer to UK wide benefits and will therefore apply to Scottish claimants also.
Advice and support for business affected by efforts to stop the spread of the virus
Many sectors were seeing a sharp reduction in demand even before the government plea around ‘social distancing’ was announced by the Prime Minster on Monday (16th March) and the subsequent announcement on closures on 20th March. Social distancing will affect any business where people usually congregate, and coupled with the plea for as many people to work from home as possible, a number of businesses that rely on trade from workers will be greatly affected. The counter to this is that some firms will see increased trade – for example, food retailers (already no doubt seeing increased revenues due to stock-piling behaviour) and take-out businesses may find displaced demand boosting their customer numbers and indeed they may be able to take on additional staff.
In the UK Budget, announced on the 11th March, there were a number of business support measures announced for the worst affected sectors: retail, hospitality and leisure. Some have been extended further this week.
The announcements around non-domestic (business) rates made by the UK Chancellor do not automatically apply in Scotland as this is a devolved tax. The most recent update from the Scottish Government was released on the 19th of March.
The planned 1.6% increase in poundage for the 2020-21 financial year has been withdrawn. This will apply to all Scottish business who pay rates (i.e those that did not already qualify for 100% relief)
Additionally, occupied premises in the retail, hospitality and leisure sector will receive 100% rates relief from 1 April 2020. Grants are also being made available for businesses in these same sectors. Relief is conditional on rateable values which typically reflect the rental values of premises, and hence are a proxy for size of the business operations. Grant support is being channelled to smaller sized businesses. There will be £10,000 for those who receive Small Business Bonus Scheme (SBBS) relief or Rural Relief and £25,000 for those above the SBBS rateable value threshold of £18,000 and up to including rateable values of £51,000. These Scottish Government has said that it will be possible to apply for these grants from April 2020. Details of exactly how to apply for this and the additional 100% relief have not yet been released.
The Bank of England has also been active, and their support is relevant for access to finance for all firms, but may be of particular relevance for larger firms. This support is available for Scottish domiciled business.
There most recent interventions announced on the 19th March (Thursday) reduced interest rates to 0.1% and put an additional £200bn into the Quantitative Easing programme which will allow them to buy up bonds to release liquidity into firms. This followed an earlier announcement on the launch of a new Term Funding Scheme to help banks and building societies to support additional lending to firms, including SMEs as well as moves to reduce capital buffers for banks so that they have increased capacity to lend to businesses.
There are a number of UK Government announcements that will also affect Scottish firms. The Budget on 12th March included an announcement that firms with fewer than 250 employees will be able to claim back SSP payments related to COVID19, although the mechanism for doing this is still yet to be announced. The UK Government announced on 17th March (Tuesday) that additional loans will be available to UK business using two routes. The first is the Coronavirus Business Interruption Loan scheme that will be delivered via the British Business Bank with loans of up to £5 million interest free for 12 months (extended from 6 months in announcements made on the 20th March). The second is the COVID-19 Corporate Finance Facility delivered by the Bank of England to support liquidity for larger firms by lending for 12 months for firms that were in good health before the crisis and making a ‘material contribution’ to the economy on terms.
On the 20th March (Friday) the UK Chancellor announced that the next quarter of VAT payments will be deferred and firms will have till the end of the financial year to pay this back.
Support for individuals affected by the economic impact of restrictions
The measures announced for supporting business may be enough to keep some affected firms operational and paying their staff. For firms that cannot survive, the financial situation for those who relied on the firm for their income (both owners and employees) will suffer. Firms that stay operational may also look to reduce staff costs either through terminating contracts or reducing hours. Unless people can find sufficiently paid new employment, people’s living standards could fall significantly and for those already on low incomes, they could be facing considerable hardship that could be long lasting if they also have no option but resort to new debt. Our blog earlier this week outlined the possible policy responses that could help alleviate this.
On the 20th March (Friday) the UK Chancellor announced measures to support employees of firms to keep them on the payroll. HMRC will provide a grant covering 80% of salaries up to a limit of £2500 a month which is close to median income. This will be available before the end of April and be backdated to the 1st March. However, those who work regularly over their contracted hours may only receive this with regard to their contracted hours, rather than their actual level of work in recent months: although this is not yet wholly clear.
For people who are currently on Universal Credit or Working Tax Credits (which UC is gradually replacing) there will be an additional £1,000 a year coming through.
For those who are self-employed, the suspension of the Minimum Payment Floor has been extended for all self employed and not just those who are ill, and this support is equivalent to Statutory Sick Pay levels. The next self-assessment income tax payment will not be due until January 2021.
For renters, housing benefit support (or the housing support available through UC) is being aligned to the 30th centile of rents in local areas.
All these measures announced on the 20th March apply in Scotland.
The Scottish Government has received £50 million in Barnett consequentials and has passed this directly on to local authorities to support their own local hardship plans as well as boosting the Scottish Welfare fund, administered by local authorities, by £45m to help them with expected demand for crisis grands. A number of additional funds have were announced on the 19th March (Thursday) to help organisations to support those affected by the crisis, including a food fund to help out those who may now not be able to rely on free school meals as schools close.
It is likely that more announcements will come for businesses and individuals in the next weeks and months, but it is no understatement to say that this support is totally unprecedented. The UK Government clearly feels confident that this support can be sustained to see us through this crisis despite its cost, and indeed the long-run costs of not providing this type of support could well be far greater.
The Fraser of Allander Institute (FAI) is a leading economy research institute based in the Department of Economics at the University of Strathclyde, Glasgow.