“This last year has been a test unlike any other” – those were the words of the Chancellor, Rishi Sunak at the Budget back in March. They bring images to mind of NHS hospitals bursting to capacity and people losing loved ones. But they also describe the trials that businesses have faced across the UK because of Covid-19.
When the Prime Minister ordered us to stay at home last year, this led to what Sunak called “an economic emergency” as firms up and down the nation closed their doors.
The measures he put in place to mitigate this are now winding down – and could present a greater test for companies.
The figures are stark
Sunak’s straightforward, simple three-word description – “an economic emergency” – masks the level of support that he has dished out to support the UK economy.
The figures are of such a scale not seen for a long time in our recent past. The Government’s support means that the UK deficit for the last tax year – 2020/21 – reached the highest level since the Second World War at around £300 billion.
The House of Commons Library – a great source of data for anyone with an interest in finance, economics or even politics – reports that the Treasury has spent almost £66 billion on the furlough scheme as of June 2021. Through loans to businesses, it has lent over £80 billion. Businesses across the UK have received rates relief worth almost £11 billion. And these are the figures so far.
Yet despite this emergency, the economy is now growing at a rate of knots. With a GDP increase of 4.8% between April and June, the BBC reports the UK may be one of the fastest accelerating economies among the G7 nations in 2021.
As the economy grows, Government support is falling away
With restrictions ending and the economy booming for now at least, it looks as if the UK is facing a rosy future. But behind this positive news, the Government is cutting back its support over the next few months.
An example is the furlough scheme. This changed from 1 July as the Government provided 70% of wages, down from 80% before. It then fell to 60% in August before it stops at the end of September. The salary caps also falls from £2,500 in June to £1,875 in September.
The 100% business rates relief for properties in the retail, hospitality and leisure sectors also changes. These receive 66% relief from July until March next year. Also, the reduced VAT rate of 5% for hospitality increases in September to 12.5% until March 2022.
Does this mean trouble ahead?
This support has stopped many firms from failing and it continues to help businesses. Furlough has protected almost 12 million jobs; early figures suggest that at the end of May, around 2.4 million jobs were still being covered by the scheme.
Businesses though have fired a warning shot on what this all means. The British Chambers of Commerce has called for an extension to this support. UK Hospitality – the sector’s trade body – has similar views. While you would expect both to make this call, they have received support from an unexpected quarter.
The Bank of England, in its Financial Stability Report in July, said that businesses will experience greater pressures soon – this could include cashflow issues as VAT and rent payments loom. As the ban on winding up petitions ends in September, it argues insolvencies could increase. Small and medium firms are particularly vulnerable, it believes.
How can we help?
In this maelstrom, it is better to act now rather than to wait for a problem to materialise and threaten your business, and worse, the future of your employees.
At Foxley Kingham, we have a range of services that can support you now. We can help with business and strategy planning so you can steer your company more easily through the next few months and years as the UK recovers. We can assist with your taxes as the fiscal regime evolves and support you plan your tax payments effectively.
If the worst happens, we can support you and your company through the various stages of administration. Our advisers can guide you through all the options for your business.
Above all, our services are flexible, personal and geared to maximise your financial health. We are passionate about supporting our customers and the business community. We work together with the same drive and determination as if it were our own business.
As the schemes evolve over the next few months, together we can ensure that the next year will not be a test like any other.
Contacting Foxley Kingham – the next steps
If you are impacted by any of the changes in Government support, you can contact the expert accountants at Foxley Kingham for a free consultation call, where you can discuss your requirements and options in confidence.