PwC Chairman and PwC Senior Economist comment on Chancellor's economic statement

Sep 24, 2020

Commenting on the economic support measures announced by the Chancellor, Kevin Ellis, Chairman and Senior Partner at PwC, said:

“The Chancellor has today provided a lifeline of support to many people and businesses - and the benefits will be felt by the wider economy.  This level of state support needs to be recognised as investment - investment in people's futures and investment in the economy.  It also marks a shift from the “rescue” package announced earlier in the year, which was aimed at preventing a freefall of the economy and mass unemployment, towards consolidating the recovery. 

“With the new Covid restrictions lasting potentially six months, decisive and significant action was needed. Jobs and business can't simply hibernate and come out in good shape - we need to keep things active for a strong recovery.” 

Jing Teow, senior economist at PwC, added:

“The Government’s announcements today will help alleviate the concerns that businesses have had about the consequences of winding down public support schemes like the CJRS, against a backdrop of a highly uncertain economic outlook.

“The new measures are therefore much more targeted and aim to address specific issues around securing the return of workers and alleviating pressures on working capital. For example, the Treasury's new job support scheme, which is targeted at SMEs and closer in spirit to Germany’s kurzarbeit scheme, will be welcomed by employers, particularly greater flexibility around bringing back part-time workers. It will be interesting to see what eligible “viable” jobs means. This could raise questions about how to support businesses in structurally-challenged sectors, which may not return to normality for a long time. 

“Sustaining working capital is a business priority at the moment, and so businesses will welcome the measures such as the extension of CBILS, the “pay as you grow” scheme that will allow loan repayments to be extended from six to 10 years, as well as the spreading out of payments of deferred VAT over the 2021/22 financial year. 

“The scale of intervention needs to be seen in the context of the economic outlook. There are signs that the momentum of recovery has slowed. The number of employees on the payroll is still around 695,000 below March 2020 levels. There is also a significant unknown on the behaviour of the virus come winter. While the new restrictions outlined by the Prime Minister affects fewer sectors of the economy than in March and are therefore less disruptive, prolonged uncertainty could dampen business and consumer confidence and constrain the recovery.

“At the moment there is little appetite to cut back on public spending, with the Treasury taking a much more responsive approach to managing this crisis in the short-term especially if the situation worsens, but expect increasing pressure for the Government to raise taxes, probably next year.”

Commenting on the Job Support Scheme, John Harding, head of employment taxes at PwC, said:

“The scheme provides a critical lifeline for up to six months for those businesses that are able to provide workers with at least one third of their ‘normal’ working hours, with the employer and the Government then each paying a further one third of the hours not worked. This will mean an employee working 33% of their usual hours will receive 77% of their usual pay. Making the scheme available not just to those that accessed the CJRS is a welcome and sensible decision. 

“It will be interesting to see how the Government approaches the requirement for larger businesses to demonstrate that their turnover has fallen through the crisis. The modelling that businesses will have to undertake when determining the costs of subsidising wages for hours not worked could also be significant.”

Ends

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Richard Pain

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