Government set to borrow billions from the Bank of England

posted by 3 months ago in Covid-19
Government set to borrow billions from the Bank of England

This week we have seen the number of UK-wide deaths rise to close to 900 each day, suggesting that lockdown measures are likely to remain in place. Sir Patrick Vallance, the chief scientific adviser, has explained that the peak of the outbreak could still be two weeks away and measures will not be lifted until the government is certain the country has reached its peak in fatalities.

The news that measures are likely to be extended was shared on Thursday by Dominic Raab, the foreign secretary who is currently deputising for Boris Johnson. The prime minister has spent much of the week in intensive care; however Downing Street has announced that Boris Johnson has been moved back to the ward and is in good spirits.

Sector-by-sector approach to ending the lockdown

With the country currently under lockdown many business owners are wondering when this will end and how the exit will be rolled out. Ministers are currently looking at a sector-by-sector approach, which will see vital industries re-open before those considered less critical. This follows a phased re-opening strategy, where industries such as manufacturing, food supply and logistics will be re-opened before those such as leisure and entertainment.

The lockdown measures began on 23 march and are currently due to be reviewed on Easter Monday, or at the latest 16 April. However, Dominic Raab has explained that rather than ending restrictions, it is more likely the limits will continue for further weeks. The government is under pressure from the Labour party, which is pushing for a clear exit strategy to be published, so businesses have a clear plan of what will happen when lockdown ends.

Pension contributions and the Coronavirus Job Retention Scheme

For businesses which are unable to maintain their current workforce, it is possible to furlough employees and apply for a wage grant via the Coronavirus Job Retention Scheme. This covers 80% of the usual wage amounts, up to a maximum of £2,500 per month and the associated pension contributions and Employer National Insurance Contributions. The temporary scheme will end on 31 May and allows payments to be backdated to 1 March 2020.

However, there have been queries relating the level of pension contributions available. The government has now confirmed that the pension contributions will be paid up to the level of the minimum automatic enrolment employer contribution. This matches the maximum level of grant available for the employer pension contributions, which is 3% on qualifying earnings.

The grant is only available if an employer pays the full amount to a pension scheme for their employees and businesses cannot claim for payments above the minimum mandatory amount. A business can choose to top up their employees pay by 20%, so they receive their usual pay amount. However, a business cannot claim for additional pension contributions made because of the top up payment.

Government set to borrow billions from the Bank of England

The government has announced a variety of financial support packages to businesses and individuals, in the form of business loans, rates holidays and cash grants. However, to provide this financial support the government will be forced to borrow millions of pounds from an emergency overdraft with the Bank of England. The overdraft will be used as a buffer to cover the shortfall in its tax income and to raise the funds needed for the various stimulus packages.

The government has not used the facility since the 2008 financial crisis, which highlights the severity of the impact of the outbreak on the UK economy. The development echoes the challenges which many businesses are facing following a steep downturn in trade. Although the government has announced various financial support measures for businesses, not every business is eligible, and it may not be enough.

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