Let’s Twist Again (like we did in Summer) – Sunak ponders budget options
They hope to see the Chancellor announce a debt-relief scheme as they claim that without it up to 4.3% of the UK’s businesses could be technically insolvent.
Additionally, they estimate that up to 20% of the UK’s companies could be entering “zombie company” status – where profits only cover the cost of debt interests payments; leaving no money for investment or paying down the original debt.
They propose a debt relief scheme, which would allow firms to pay down state-backed loans taken on during the crisis gradually via a surcharge on profits or shareholder payments, similar to how the student loan system operates for tuition fees.
The Institute of Directors are also keen to keep another emergency Covid-19 rule change regarding wrongful trading.
Directors’ liability regarding wrongful trading was suspended as part of the Corporate Insolvency and Governance Bill in June and is due to expire on 30 September 2020 but the IOD said the relaxation should last until next year to “aid the economic recovery from the pandemic.”
They insist that this and other emergency insolvency rules such as suspending recovery action by creditors to give valuable breathing space to struggling companies is extended to prevent significant company collapses and job losses.
A London real estate group have written an open letter asking for business rate holidays in the capital to be extended to the end of 2021, free public transport, a suspension of the congestion charge and a London-only reduction of VAT to 5% on goods purchased in physical stores along with any food and drink ordered in restaurants and cafes.
Even the influential Treasury select committee, in their latest report on the impact of Covid-19 on the economy, are suggesting the Chancellor extends the furlough.
Mel Stride MP, Chairman of the committee said: “Our report focuses on emerging challenges as lockdown measures are lifted.
“One such challenge is to target assistance effectively at those businesses and individuals who need it. The chancellor should carefully consider targeted extensions to the CJRS and explain his conclusions.”
Stuck in the middle (with you)
Meanwhile the Bank of England are leading the alternative chorus who think the Chancellor should stay the course he’s set and allow the emergency Covid-19 measures including the Coronavirus Job Retention Scheme (CJRS) to reach the end of their natural life and then set about dealing with the casualties and consequences.
Andy Haldane, the Bank of England’s Chief Economist agreed with Andrew Bailey, his governor, that the Chancellor should move forward to the next stage of government support rather than extend the furlough scheme.
He said: “Our job as policymakers is to assess how we can best cushion the necessary adjustment.
“We need to recognise we are undergoing a period of change and there is a need to help those people affected adjust quickly.
“Even elongating the coronavirus job retention scheme would not allow the necessary process of adjustment to take place.”
This is not the news that businesses in the hospitality, leisure, arts or manufacturing sectors would like to hear as they are pleading for extended and targeted help to help them navigate any revived or extended lockdown or other advice or changes that would affect them and their forecasts for the rest of the year.
However the Chancellor plays his hand in the Autumn budget next month there will be winners and losers.
There may be new changes to laws forthcoming as well as temporary economic measures to boost and protect sectors but these will be revealed from Gladstone’s famous red box on the day.
Rather than risk the future of your business on an anonymous newspaper briefing or stable whisper, you can do something tangible to protect everything you’ve worked so hard for right now.
Get in touch with us to arrange a free virtual initial consultation with one of our experienced advisors.
We can work with you to establish what areas are in need of the most attention and create an effective and efficient plan to strengthen and secure them.
Once your business has repaired its foundations then it can withstand whatever future storms may fall upon with confidence.
You can bet on it.