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How will the government’s tier system affect small businesses?

The government has introduced tough new restrictions in its bid to control the pandemic over the winter months. We look at the implications for the UK’s SMEs.

Last updated: 15 Oct 2020 6 min read

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The government has introduced a new graded system of restrictions in England in its latest attempt to slow the spread of the coronavirus. As of 14 October, local areas will be classified into one of three tiers according to the current prevalence of Covid-19.

For businesses in the worst affected areas – those classified as Tier 3 – Chancellor of the Exchequer Rishi Sunak has announced some new support measures, including an expansion of the forthcoming Job Support Scheme and additional access to cash grants.

How does the three-tier system work?

Local authorities across England have this week been classified as being on medium alert (Tier 1), high alert (Tier 2) or very high alert (Tier 3). At the time of writing, the only parts of the country that have been placed in Tier 3 are in the Liverpool City region.

  • Tier 1 restrictions: As has been the case in recent weeks, the rule of six applies to groups of people meeting both indoors and outdoors, while pubs, restaurants and other hospitality businesses must shut by 10pm.
  • Tier 2 restrictions: The same as Tier 1, but no household mixing is permitted indoors.
  • Tier 3 restrictions: A ban on household mixing, which applies both indoors and outdoors and which includes hospitality venues and private spaces. In addition, pubs and bars which do not serve “substantial” meals will not be permitted to open, and there is general guidance against travelling into and out of the area.

The new measures introduced in Liverpool have also seen gyms, leisure centres, betting shops and casinos forced to close – although this will not necessarily be the case in every Tier 3 area.

What support is available to businesses that are affected?

The Job Retention Scheme introduced in the spring – also known as the furlough scheme – closes at the end of October. Last month, Rishi Sunak unveiled its replacement, the Job Support Scheme. This will provide wage subsidies for employees who are working less than their normal hours, and is aimed at reducing the number of redundancies over the coming months.

In addition to this, employers who keep previously furloughed staff on the payroll until the end of next January will be eligible for a £1,000 Job Retention Bonus.

To complement the new three-tier system of restrictions, Sunak has announced an expansion of the Job Support Scheme for businesses that are forced to suspend operations due to local or national lockdowns. This means that the government will pay two thirds of each furloughed employee’s salary, up to a monthly limit of £2,100. Businesses will be expected to cover National Insurance and employer pension contributions, and this system – which covers the whole of the UK – will come into effect at the start of November.

“For those businesses in Tier 3 areas, forced to close their doors again, things look bleak, but the support announced last week for closed businesses will hopefully give them the breathing room they need to survive another lockdown”Kate Nicholls, chief executive, UKHospitality

The government is also increasing the scope of the Local Restrictions Support Grant scheme in England: this means that any company that is legally forced to close due to new Covid-19 restrictions will be able to claim a grant of £3,000 a month after two weeks of closure. Previously, the scheme paid £1,500 every three weeks, and was only available after a business had been shut for three weeks.

What is happening elsewhere in the UK?

Northern Ireland, Wales and Scotland are all introducing new restrictions as infection rates rise around the UK.

  • In Northern Ireland, the executive has this week announced a four-week closure of pubs and restaurants in response to soaring infection levels – although takeaway services may continue – while schools will have an extended half-term break at the end of the month.
  • In Wales, ministers are also looking at introducing new measures over the next few days, with a full temporary shut-down of most business activity – known as a circuit breaker – reportedly being considered.
  • In Scotland, the toughest measures have been focused on the central belt region: here, pubs, bars and restaurants must close until 25 October, although takeaways may still be provided. Cafés that do not serve alcohol may remain open until 6pm every day. Other leisure venues such as snooker halls and bowling alleys must also close over this period, although gyms remain open. Elsewhere in Scotland, it is not permitted to serve alcohol indoors, while the 10pm curfew remains in effect.

Businesses across the UK will be able to access the Job Support Scheme (see above), while the Scottish government has recently announced a further £40m in funding for businesses affected by the new restrictions: this will go towards providing one-off grants of up to £3,000 for those firms which have been forced to close.

The Northern Ireland executive is expected to announced new support measures shortly.

How have businesses responded to these new measures?

Kate Nicholls, chief executive of industry body UKHospitality, says she is particularly concerned about the lack of extra support for pubs and restaurants in Tier 1 and Tier 2 areas, which are being forced to close every night by 10pm.

“The impact of all of these restrictions is huge and we are quickly reaching the point of no return for many businesses,” she explains. “For those businesses in Tier 3 areas, forced to close their doors again, things look bleak, but the support announced last week for closed businesses will hopefully give them the breathing room they need to survive another lockdown.

“But there is currently a concerning lack of support on offer for hospitality businesses in Tier 2 and to a lesser extent Tier 1, despite their facing restrictions that is seeing trade down by between 40% to 60%. They will have the worst of both worlds, operating under significant restrictions without the financial support on offer to Tier 3 businesses.”

UKHospitality is calling on the government to rethink the 10pm curfew in areas where Covid-19 infection rates are relatively low.

David Fort is partner at accountants Haines Watts in Manchester, an area that local and national politicians are reportedly on the cusp of moving into Tier 3 from Tier 2. Greater Manchester’s mayor Andy Burnham has objected strongly to the move, reportedly threatening legal action against the government.

Fort says: “The Tier 2 restrictions in Manchester are very similar to what have been in place since early August so businesses have adapted to them already.

“A move to Tier 3 would be disastrous for businesses, especially in hospitality and would hit business and consumer confidence. Businesses need stability and certainty. If they have that, then it’s amazing how robust and agile our clients can be – but the government’s constant changes and negative stories in the press have damaged confidence, and patience is wearing thin.”

Fort says ministers should “communicate a plan and stick to it”.

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