Britain’s biggest firms have been told they cannot pay dividends, dish out bonuses or sack staff if they want to benefit from Rishi Sunak’s latest coronavirus bailout.
With the furlough scheme due to close at the end of next month, the Chancellor unveiled his new job support scheme to help pay the wages of staff brought back part-time.
But unlike the existing lifeline, which was used by big firms such as British Airways and Philip Green’s Arcadia before they laid off workers, the new jobs scheme will come with strings attached. All small and medium-sized firms will be eligible for support.
With the furlough scheme due to close at the end of next month, the Chancellor unveiled his new job support scheme to help pay the wages of staff brought back part-time
In contrast, larger firms will have to undergo a financial impact test to demonstrate their business has been hit by Covid-19.
There was no such requirement for the Job Retention Scheme, which has been used by 1.2m firms to support 9.6m jobs – at a cost of more than £39billion so far.
Yesterday Sunak told MPs he wanted to ensure support ‘is targeted where it is most needed.’
He added: ‘Similarly there will be restrictions on larger companies in terms of capital distributions to shareholders, whilst they are in receipt of money for their workers on this scheme, and indeed they will not be able to make redundancy notices to those workers who are on this scheme throughout its duration.’
Further details will be published in the coming days but it is understood larger firms such as those in the FTSE 350 will also be banned from paying executives bonuses.
Russ Mould, investment director at AJ Bell, said the restrictions make ‘perfect sense’ but would come as another blow to investors and pension funds, which have already seen dividends slashed at a number of major firms.
He added: ‘The loss of dividends is another blow in the short term but better that than the long-term damage to a company’s reputation or finances from paying dividends with money it does not really have.’
The Chancellor wants to avoid a repeat of firms claiming taxpayer support to save jobs, only to announce mass lay-offs.
BA’s decision to furlough nearly 23,000 staff shortly before announcing plans to cut 12,000 jobs angered MPs, despite the airline battling for survival. Arcadia, which owns Topshop, also accepted millions of pounds before axing hundreds of jobs.
Measures announced by Sunak yesterday were part of efforts to avert another wave of job losses after ministers tightened up social distancing rules to tackle a resurgence of the virus.
The end of the furlough scheme next month and new restrictions – including a 10pm curfew on pubs across England – has piled pressure on the Chancellor to come up with a replacement.
The job support scheme will run for six months from November 1. It is much less generous than the furlough scheme but is still expected to cost the Government £300million per month for every one million workers it supports.
The Treasury is understood to estimate that anywhere between 2m and 5m people could be covered by the scheme – meaning it could cost up to £1.5billion a month.
Firms can use it to top up the wages of those staff who work at least 33 per cent of their normal hours, taking their pay to at least 77 per cent of usual.
For every hour not worked the employer and the Government will each pay one third of the employee’s usual pay.
The Government’s contribution will be capped at £697.92 a month – much lower than the £2,500 cap under the furlough scheme.
Paul Johnson, the head of the Institute for Fiscal Studies, predicted the support was not generous enough.
But the CBI, which represents big firms, said it would ‘save hundreds of thousands of viable jobs this winter’.