The Impact of COVID-19 on the United Kingdom’s Economy

Updated: Sep 23

Written by Thamirys Campos


Introduction


This report will analyze the United Kingdom’s measures during this moment of the crisis caused by COVID-19, also known as the Coronavirus. It will also look into how the government is trying to aid the economy by providing an income to struggling companies that are trying to avoid making the hard decision of letting employees go due to the decrease of profit.

In addition, the report will look at how COVID-19 has affected the entire UK economy such as; airlines, carmakers, technology firms, retailers, and the tourism industry. The impact truly impacts all businesses no matter size.


UK Government Difficulties Due to COVID – 19


Firstly, the government faces a challenging situation unprecedented in the living memory and is having to do unprecedented measures. Some of these include having to prop up businesses to ensure that they can continue to pay wages to their employees. The government is having to help those who have been forced out of their jobs and those who are self-employed.


The government has taken never before seen actions to support businesses and to safeguard jobs. The most important aspect has been to protect the UK economy. Businesses will benefit from the £92 billion pound aid inter form of business rate relief and grants. Banks across the UK are also trying to help by providing customers with “mortgage holidays” and increased credit facilities loans. Also, the Prime Minister has a plan. Chancellor Rishi Sunak even had a full formal title for it, “Our Plan for People’s Jobs and Incomes” (HuffPost is now a part of Verizon Media, 2020).

Coronavirus Job Retention Scheme


The Coronavirus Job Retention Scheme is a government grant made to employers. Under the scheme, all UK employers will be able to access support to continue paying part of their employee’s salaries, those of which may have been laid off during this period of crisis. All the businesses in the UK are eligible for the scheme, no matter if they are a large or small business. The scheme aims to reimburse employers for 80% of the furloughed workers’ salaries which cost up to £2,500 per calendar month (COVID-19: Support for Businesses, 2020).


Also, employers can add the extra 20% pay for their employees if they choose to or add the £2,500 to the employees’ salary, but this is not a formal requirement to obtain access to the scheme. The scheme is intended initially to last a period of three months. However, there is still uncertainty, and it could be extended for a longer period if required (COVID-19: Support for Businesses, 2020).


Furthermore, this program will be administrated by Her Majesty’s Revenue and Customs (HMRC). Employers will need to designated affected furloughed workers to the HMRC. Furloughed workers are members of the workforce who will remain on the payroll but are temporarily not working.


Employers will also need to notify employees of this change in their employment status; becoming furloughed. This will allow the employer to inform HMRC about the employees’ status and provide details of that earning through an online portal. The grant is to cover reimbursement to the employer, so the outliner will make the wage payments to the furloughed worker and HMRC will reimburse them. HMRC is urgently working to set up a system for reimbursement as there is currently no existing system to pay employers. Also, the scheme does not work for those employees who are remotely working (COVID-19: Support for Businesses, 2020).


Self-Employed Income Support Scheme


If a self-employed person has suffered a loss of taxable income, grants will be paid to them with 80% of the profits up to £2,500 per calendar month, a similar scheme as the employees. Moreover, initially, this will be available for up to three months with payments starting at the beginning of June 2020. This can mean the people in this category will be left without any payment until then.


Also, people are not able to apply for the HMRC scheme as HMRC is responsible for contacting those who are eligible for the system and to invite them to apply online. The government’s advice is that people not contacted by HMRC now should not do so as it would disrupt the work currently being done (COVID-19: Support for Businesses, 2020).


Furthermore, eligibility for this grant is for sole traders and those who are members of a partnership. The eligible person must have half the income from self-employment and they must have submitted an income tax self-assessment tax return for the year of 2018-2019. They must also be trading in the current tax year 2019-2020, or have stopped due to COVID-19 with the plans of continuing to trade in 2021. The self-employed must also have trading profits of less than £50,000. The people who are not eligible for the scheme can apply for Universal credit.

However, as some people are still not able to keep their jobs, around 1.5 million people have signed up for Universal credit payments. According to the Office for National Statistics, around one in four adults have suffered financial problems as the crisis unfolds.


Deferment of Tax Payments


One measure that has been taken to help businesses is a relaxation on the time limits to pay taxes. Firstly, the value-added tax (VAT) will have a deferral starting from the 20th of March until the 30th of June 2020. This applies to all businesses in the United Kingdom, and this is an automatic offer with no application required. The businesses will not need to make VAT payments during this period. Taxpayers will be given until the end of 2021 to pay any liabilities that have accumulated during the deferral period.


The VAT refunds and reclaims will be paid by the government as usual. Also, the income tax self-assessment payments, which are due on the 31st of July 2020, will be deferred until the 31st of January 2021. No penalties or interest for late payments will be charged in the deferral period (COVID-19: Support for Businesses, 2020).


China’s Impact on the UK Economy


COVID-19, which originated in Wuhan, China, has caused global disarray. China is one of the biggest economies, with nearly 20% of global activity. The country's share of global growth is even higher. As China has grown, so have their imports and exports, which now accounts for more than a 10th of global trade.


There are many goods that are made in China with the United Kingdom heavily relying on Chinese products. As a result of COVID-19, China stopped all the unessential workforce which has significantly disrupted the supply chain of the UK. This has affected many businesses in the UK which rely on these Chinese exports.


Furthermore, a “slowdown in China could, therefore, lead to an abrupt adjustment in global asset markets, as investor risk aversion adjusts. Lower global growth prospects could also have a direct impact on sentiment, hampering a recovery in investment” (European Commission, 2020). Moreover, even once the virus has been controlled, the economic fallout may linger. This could mean cuts to air and sea cargo increasing shortages and higher prices as factories start up again. China, the engine of global trade, has stalled and that means a slow down for the global economy.


Expectations for the Future

The Office Budget Responsibility (OBR) was predicting the economy to grow by 1% in 2021. However, now it estimates that it could contract by almost 13% if the lockdown that began on the 23rd of March remains in place until the end of June.


In addition, if that does happen, in this scenario the OBR states that the number of unemployed people could reach more than 3.4 million people. Also the government borrowing, this year could rise from a predicted £55 billion pounds to £273 billion pounds as tax receipts collapse (Office for Budget Responsibility, 2020).


There is a lot of uncertainty during this period; businesses are unable to stay closed for an extended period of time without the fear of closing down for good It would cause a catastrophe for the UK economy. However, social distancing of only allowing people to leave their homes to go to the supermarket, daily exercise, or if the person is going to and from work as an essential worker may be the only foreseeable future at the moment.

The potential vaccine for COVID-19 is due within the next 12 to 18 months. This will help vaccinate the workforce, but then the population is left to wonder what will happen until then, and how is everyone meant to go back to “normal”. However, due to the situation being so drastic, this is a pandemic that we can learn from and prepare for the next possible pandemic.


We can use this as a learning curve to ensure a more humane system is created if a similar situation occurs again; moving away from markets and use profits to organise the economy. Moreover, this can help expand the amount of time the government spends on pandemics and other possibly worldly disasters. This also helps healthcare and medicine fields prepare for the next possible pandemic. All of this goes together so the UK government can ensure the economy is not affected as much in the future (Mair, 2020).


Conclusion


In conclusion, the economy of the United Kingdom is in a very critical state at the moment. The government is trying to help everyone across the nation by ensuring them that everyone will get the financial help they need. By offering large and small companies grants; this will allow them to pay employees even while the business is non-operational. Even the self-employed will receive compensation from the government but at a later date than others.


There is still uncertainty over the government being able to fund all those who need help, as some say this will result in a big economic decline. As we continue forward, it seems that only time will tell.


References & Bibliography


BBC News. 2020. Coronavirus: Evening Update. [online] Available at: <https://www.bbc.co.uk/news/uk-52141799&gt; [Accessed 1 April 2020].

BBC News. 2020. Four Ways The Coronavirus Has Hit The UK Economy. [online] Available at: <https://www.bbc.co.uk/news/52138535&gt; [Accessed 1 April 2020].

Ec.europa.eu. 2020. European Commission | Search. [online] Available at: <https://ec.europa.eu/search/?queryText=Spill-overs+from+the+slowdown+in+China+on+the+EU+economy-+channels+of+contagion&query_source=europa_default&filterSource=europa_default&swlang=en&more_options_language=en&more_options_f_formats=&more_options_date=&gt; [Accessed 26 March 2020].

GOV.UK. 2020. COVID-19: Support For Businesses. [online] Available at: <https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses&gt; [Accessed 3 April 2020].

GOV.UK. 2020. Coronavirus Support For Employees, Benefit Claimants And Businesses. [online] Available at: <https://www.gov.uk/government/news/coronavirus-support-for-employees-benefit-claimants-and-businesses&gt; [Accessed 27 April 2020].

Office for Budget Responsibility. 2020. Coronavirus Reference Scenario – Office For Budget Responsibility. [online] Available at: <https://obr.uk/coronavirus-reference-scenario/&gt; [Accessed 28 April 2020].

Mair, S., 2020. How Will Coronavirus Change The World?. [online] Bbc.com. Available at: <https://www.bbc.com/future/article/20200331-covid-19-how-will-the-coronavirus-change-the-world&gt; [Accessed 27 March 2020].

Ons.gov.uk. 2020. Employment Rate (Aged 16 To 64, Seasonally Adjusted) – Office For National Statistics. [online] Available at: <https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/timeseries/lf24/lms&gt; [Accessed 27 April 2020].

Partington, R., 2020. UK Economy Could Shrink By 35% With 2M Job Losses, Warns OBR. [online] the Guardian. Available at: <https://www.theguardian.com/business/2020/apr/14/uk-economy-could-shrink-by-35-with-2m-job-losses-warns-obr&gt; [Accessed 28 April 2020].

RED 89.1FM / 93.1FM Vancouver. 2020. Economic Impact Of COVID-19 – RED 89.1FM / 93.1FM Vancouver. [online] Available at: <https://vancouver.redfm.ca/economic-impact-of-covid-19/&gt; [Accessed 28 April 2020].


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