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The Winter Economic Plan – more questions than answers?

The Chancellor has unveiled his ‘Winter Economic Plan’ to help businesses and employees through the Coronavirus pandemic. Rishi Sunak has granted more time to pay tax liabilities and to apply for and repay coronavirus business loans, as explained by Richard Wadman here. All Covid related measures are now timed to end on 31 March, making a March Budget likely, now that the Autumn Budget has been cancelled. Whilst in many ways the cancellation of the Autumn Budget is a relief, it suggests we’re back in crisis mode and its absence doesn’t help businesses trying to plan ahead.

A new Job Support Scheme has been announced and Scott Campbell has commented on it in more detail here. The Institute for Fiscal Studies has said that it is significantly less generous than the furlough scheme it replaces, with employers having to pay at least 55% of wages. The scheme seems to help those highly skilled employees in businesses where they can be utilised at around 70% capacity, where a relatively small top up from the Government could be useful. For those businesses that rely on lower skilled labour, or are only able to utilise staff working a third of their usual hours, the advantages of the scheme seem less clear.

As with most recessions the young and the low skilled appear to once again be the big losers. Where is the help for this much larger group? If the Government is serious about getting them back into work and upskilling the economy post-Brexit and to deal with the climate change challenge, then where are the re-training measures? In their recent report The Resolution Foundation highlighted that training is strongly associated with an increase in the odds of a person returning to work after a period of joblessness. However, it notes that adult education and training in the UK is poorly equipped to support the large numbers of lower qualified workers now at risk of losing their jobs in sectors like hospitality, entertainment and retail – all key sectors in our region. Realistically in order to offer those training places in the next academic year, education providers need to be ramping up now. If measures aren’t announced soon then this seems unlikely to happen in the next year.

Since the start of the pandemic questions have been asked on who will pay for the crisis (more details can be found here). Tax rises seem likely to be too difficult for the Government for quite some time to come, as economically lots of businesses are in no shape to pay them and politically it would involve a number of manifesto breaches. Government borrowing levels now stand at over £2 trillion, but is this debt all real debt, in terms of being owed to third party creditors? So far this year, the main way in which the Covid measures have been financed has been by increasing the country’s overdraft – the ‘ways and means’ facility with the Bank of England. You could say it is very similar to a parent company issuing a loan to a subsidiary- a very different situation to a loan from an external source. If the debt doesn’t appear on the balance sheet, do we actually need to increase taxes to pay for it or has the Government now found the infamous “magic money tree”? Surely there have to be long term consequences if that is the case, and my school and university economics taught me that this way leads to inflation, but that seems a long way away from where we are right now. Also, as my partner Daniel Sladen puts it, there is less concern in becoming the next Greece, when everyone else is doing the same thing.

Looking beyond the current crisis, and returning to my opening comments, the cancellation of the Autumn Budget is concerning given the end of the transition period on the 31 December. Indeed, what is the UK economic strategy post-Brexit? On climate change, whilst the target of net zero greenhouse gas emissions by 2050 has around for a year now, are we investing enough for the future?

FEATURING: John Endacott
John is the firm’s head of tax. He provides high level tax advice combined with commercial acumen in terms of managing and advising on personal… read more
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