Client update - 25th September 2020
The prospect of a second lockdown saw the FTSE plunge to a three-month low this week, as the overall fear of a resurgent virus impacted the market. Although I am sure most of our clients will by now be well aware of the steps taken by the government over the last few days, I think it is one of those times that it is important to set them all against the backdrop we find ourselves in.
On Tuesday the Prime Minister set out his views on steps that were required to control the spread of the virus, and whilst the business community (hospitality and events especially) felt these steps were heavy – the majority worried that they were not hard enough. In fact, the arguably lighter restrictions announced by the Prime Minister, along with the falling pound, has helped the market recover slightly.
Tuesday’s announcements were followed up by Chancellor Rishi Sunak announcing his Winter Economy Plan, featuring the launch of the government’s new Job Support Scheme from 1st November as part of the next phase of coronavirus support measures for workers. He also announced that there would be no traditional Autumn Budget this year.
Rishi Sunak told the House of Commons that the government must “protect as many viable jobs as we can”. Employees must work a minimum 33% of their hours to be eligible for the scheme. This is a major change from the current Furlough scheme that does not require an employee to return to work at all. The government and employers will then each pay one-third of wages for hours not worked.
The state’s contribution will be capped at £697.92 per month for each worker, and employers are still able to claim the £1,000 one-off Jobs Retention Bonus for formerly furloughed staff who remain in post until at least February.
Meanwhile, the self-employed were offered a grant worth up to 20 per cent of average monthly profits for the period November to January, up to a total of £1,875, with further sums available to cover the following three months.
Up to half a million businesses which deferred VAT bills will be allowed to make interest-free payments over 11 months rather than handing over a lump sum in March. Self-assessment tax payments deferred from July, as well as those due in January, will not need to be paid until January 2022.
The Chancellor said his primary goal was to support jobs, however he told MPs that this could not include maintaining posts with no viable future under the coronavirus restrictions announced by Boris Johnson earlier this week.
The Institute for Fiscal Studies (IFS) think tank said that “many jobs” will be lost over the next few months, as the new scheme requires employers to pay 55 per cent of short-time workers’ wages, compared to no more than 20 per cent under furlough, while those unable to do any work - such as nightclub staff - will not be eligible.
IFS director Paul Johnson said the new scheme was “significantly less generous than the furlough scheme it replaces”, as the Chancellor was “trying to plot a difficult path between supporting viable jobs while not keeping people in jobs that will not be there once we emerge from the crisis.”
The Chancellor had been under recent pressure to tackle the threat of rising unemployment in the UK – with the country now facing up to six months of coronavirus measures during the second wave.
As part of his statement, Sunak also announced a “pay as you grow” scheme for businesses that have taken government guaranteed loans during the COVID-19 crisis. “Loans can now be extended from six to ten years, nearly halving the average monthly repayment,” Sunak told the House of Commons.
There can be little doubt that the UK is now heading towards more stringent lockdown measures and a risk that the government is already moving too slowly in some of the worst affected areas. No matter where your political preferences reside, we can acknowledge that the government is trying to strike a very delicate balance between controlling the spread of the virus and trying to maintain an economy that is at breaking point. When you add into the mix the precarious Brexit negotiations that risk being derailed by the Pan European spread of COVID-19, let alone political bungling, and you can understand why we have our lowest weighting to UK equities in a decade in our portfolios. There will hopefully come a time in the next twelve months where we can start to change this positioning, but right now we feel there are better investment opportunities available in Asia than in the UK and over the summer we have been proven right in this allocation.
In our offices we have been running a low level of staffing since lockdown was originally eased, with key office based roles such as administration and client services returning to the office, along with some senior management, whilst the bulk of our staff remain working from home. The announcement by the government this week has not led to any major change in our staffing policy, but we proved in March and April that should we be asked by the Prime Minister to return to a full lockdown, we have the skills and resources to look after our clients throughout the winter period until COVID-19 once again comes under control.
I do hope this update finds you all safe and well and as always, should you have any questions, please do not hesitate to be in touch.