The Economy Summary is part of our Weekly COVID-19 Bulletin, sent every Thursday. You can sign up to receive your copy here.
This week, the Government announced that businesses that took out Government-backed Bounce Back Loans to get through Covid-19 will now have greater flexibility to repay them.
The Treasury’s Pay as You Grow repayment flexibilities enable borrowers to tailor their repayment schedule, with the option to extend the length of their loans from six to ten years (reducing monthly repayments by almost half), make interest-only payments for six months or pause repayments for up to six months. They can also delay all repayments for a further six months, meaning businesses can choose to make no payments on their loans until 18 months after they originally took them out.
Pay as You Grow will be available to more than 1.4m businesses that took out a total of nearly £45bn through the Bounce Back Loan Scheme.
The resurgence of Covid-19 has led to a downward revision in forecasts of UK economic growth in 2021, made by the National Institute of Economic and Social Research (NIESR), from 5.9% to 3.4%.
In NIESR’s main-case forecast scenario, unemployment is expected to rise significantly following the end of job schemes in April, reaching 7.5% or 2.5m people by the end of the year. The report warns against Covid support being withdrawn prematurely and calls on the Chancellor to announce policies to support the labour market beyond April.
Similarly, Labour warned that businesses face a bombshell in April of more than £50bn, which will cost jobs and blow a massive hole in the recovery, as rates holidays, tax deferrals, VAT cuts, the furlough scheme and other Government support packages are due to end. On a similar note, IPPR published new analysis which concludes that more than half a million UK employers are at risk of collapse in the spring without the extension of business support, as cash reserves fall ‘perilously low’.
Resolution Foundation agrees with the extension of current support but also goes further, urging the Chancellor to introduce targeted grants for firms in the sectors most affected. Similarly, the Institute of Directors’ Budget submission calls for Chancellor Rishi Sunak to put entrepreneurs at the heart of his Budget and deliver a ‘shot in the arm’ through a stimulus package to unleash investment in start-ups alongside measures for the millions of owner-directors who have been without significant financial support for almost a year.
Members of the Work and Pensions Committee argued that the Chancellor must maintain for another year ‘at the very least’ the £20 per week increase in Universal Credit (UC) and Working Tax Credit introduced to support families during the coronavirus pandemic. The report warns that removing the payment as planned in April, while the effects of the pandemic are still being felt, would ‘plunge hundreds of thousands of households, including children, into poverty’ while dragging those already in poverty ‘down into destitution’.
While the Committee recognises that continuing with the increase would come at a ‘substantial cost’, it argues that this should be seen in the context of the Treasury’s own £280bn figure for total spending on coronavirus support measures this year.
The Joseph Rowntree Foundation has estimated that keeping the £20 rise would cost around £6.4bn in the next financial year. Similarly, in a new Women and Equalities committee report, committee members have issued 20 recommendations for the Government to tackle the gendered economic impact of coronavirus, including maintaining the £20 increase to Universal Credit.