Sunak’s Omicron bailout: what’s on offer, and is it enough?
Analysis: All you need to know about the chancellor’s £1bn in emergency support for firms hit by the variant
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Last modified on Tue 21 Dec 2021 09.49 EST
The chancellor, Rishi Sunak, has announced a £1bn package of emergency financial support for businesses in response to the economic damage caused by the Omicron variant.
What is the Treasury offering?
Grants worth up to £6,000 will be available for hospitality and leisure firms. A further £100m of discretionary funding will given to local authorities for firms outside the sector but still affected by Omicron. The latter tops up £250m of unspent funding.
The statutory sick pay rebate scheme will be reopened for all types of business. Launched in May 2020 to compensate small and medium-sized employers for payments made to their staff,, it had been wound down at the end of September.
The £2bn culture recovery fund will be topped up by £30m to support theatres, museums, galleries and cinemas.
Funding worth £150m will be allocated through the Barnett formula for Scotland, Wales and Northern Ireland.
The Treasury points out that other measures are still in place, including business rates relief and a 12.5% reduced VAT rate for hospitality until the end of March, flexibility with government-backed loan repayments and extra time to pay taxes.
Why do businesses need help?
Hospitality chiefs told Sunak that 10,000 venues were at risk of closure as a result of a severe drop in trade since news of Omicron broke. The chancellor had been reluctant to take action but changed tack after being forced to cut short a trip to California to hold meetings with furious industry bosses on Friday.
The sector usually makes a quarter of its annual profits during the festive season, and the trade body UK Hospitality has said more than half of venues suffered a 40% drop in revenue last weekend.
Business confidence has also taken a heavy knock more broadly. Retailers have suffered reduced footfall and private sector growth expectations have dropped to their lowest ebb since before the start of the vaccine rollout.
Economists say tighter restrictions could push the economy back into recession early next year, but much depends on how the Omicron wave develops and how the government, households and businesses respond.
The Treasury is keen to point to a stronger starting point than earlier phases of the pandemic. Many companies have more cash in the bank than before the pandemic. Deposits for all hospitality firms have risen by £7bn and company insolvencies in the sector are 25% below pre-Covid levels. Staff vacancies are 50% higher.
Is it enough?
Business leaders have broadly welcomed the measures, but the Treasury has stopped short of relaunching the furlough scheme, which some companies and trade unions regard as vital to support jobs and the economy.
The relaunch of the sick pay rebate will help firms, but does little to help their staff. Employers and unions are also concerned that statutory sick pay is too low, which hits workers financially and discourages self-isolation. The TUC estimates that 238,000 hospitality workers, or about one in six, do not even qualify for statutory sick pay, pushing them to try to work through illness to protect their earnings.
Much will depend on the severity of Omicron and what happens next with government restrictions. Sunak’s measures may be seen as substantial for a short-term decline in activity, but further government restrictions or sustained pressure on the economy would lead to calls for more.
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