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UK Government Reveals Another Helping Hand for Businesses

As the country enters its third period of lockdown, chancellor Rishi Sunak has announced another bail-out scheme that is designed to help businesses get through this tough period. Yet, it is believed that the new restrictions will still severely damage the national economy.

What Does the New Package Include?

Sunak announced bail-outs that could be worth a total of £4.6 billion. Among the biggest beneficiaries will be retail, leisure and hospitality venues, getting £9,000 in one-off grants to help them through a lockdown that could last more than the initial period up to the February half-term holidays.

The lockdown is planned for seven weeks, at the moment, and around 600,000 firms across the country should be eligible for the cash help to “sustain jobs” and keep them afloat. An additional sum of £594million is also to be set aside in a discretionary fund, that could be used to assist other ailing businesses.

As for the furlough scheme, the chancellor refused to rule out extending it beyond its current planned end date in April. He said that he will “take stock” of the situation in the run-up to March’s Budget before making that decision.

Reaction and the Possible Effects

Economists have already warned of the devastating effect that this new period of restrictions could have on the UK’s economy. Some estimates put the possible damage at 10% being knocked off the GDP for every month that it goes on.

Business leaders have also pointed out that the proposed bail-out might not be enough to stop companies from going under. They have called for extra measures such as VAT and rates relief, warning that we could witness a series of bankruptcies if this doesn’t happen. The increase in the use of the debt collection process is an indication of how many firms are now struggling.

The IFS think-tank has stated that the monthly hit on the GDP might not be as high as the 10% that is being widely spoken about. They believe that many businesses have learned to adapt due to the first national lockdown, allowing them to lower the damage done this time around.

Paul Johnson is an IFS director and he said that the damage done to the British economy is as bad as it has been in the “whole of history”. The current economic crisis is already said to be worse than anything since the Great Frost of 1709, with the latest period of lockdown restrictions set to deepen the gloom.

This is amid fears that public sector borrowing could reach £400billion in 2021, with tax-payers picking up the bill later on. The high level of borrowing could continue for several years, with £127billion already spent on the NHS and public services, together with £71billion on support for businesses and £86billion on the furlough scheme.

Once lost revenues are added to the direct cost of handling the pandemic, the national debt is now thought to be sitting at a figure of at least £2 trillion, and growing. Thankfully, low interest rates have provided some relief, but the Office for Budget Responsibility has pointed out a £46billion funding gap to be filled by spending cuts and tax rises before 2025.