United Kingdom Government
Since March 2020, the government of the United Kingdom and the country's central bank, the Bank of England, have announced several major economic stimulus programs and policy measures to protect British businesses, consumers and institutions from the effects of the coronavirus.
The government's support is mainly focused on supporting businesses and individuals through subsidized and government-guaranteed loan programs, outright grants, and tax and payment holidays.
Coronavirus Business Interruption Loan Scheme
On 23 March the government announced the Coronavirus Business Interruption Loan Scheme, which will provide government-backed loans of up to £5 million to small and medium-sized businesses. Loans are interest free for the first 12 months. The loans, which are made available through more than 40 accredited lenders, are guaranteed up to 80% by the government.
Coronavirus Job Retention Scheme
The Coronavirus Job Retention Scheme (CJRS) will help businesses pay 80% of salaries of employees that have been furloughed, up to £2,500 per month. The program also covers self-employed workers. Banks are prohibited from asking borrowers for collateral.
Self-Employed Income Support Scheme
The Self-Employed Income Support Scheme provides cash grants of up to £2,500 a month for at least three months for people who earn the majority of their income from self-employment.
On 17 August 2020 the Treasury announced the second stage of the Self Employment Income Support Scheme (SEISS) to provide grants worth up to £6,570 each to support self-employed people who are unable to work. Over 2.7 million people have benefitted from the plan so far, receiving £7.8 billion. Under the second stage, those eligible will receive a grant equal to 70% of their average monthly income.
On 2 November 2020 the government said it was increasing SEISS by an additional £4.5 billion, with grants worth up to 80% of average income. It also said it would take steps to ensure recipients get paid faster.
Coronavirus Large Business Interruption Loan Scheme
The Coronavirus Large Business Interruption Loan Scheme (CLBILS) provides loans up to £200 million to larger companies, with 80% of the principal guaranteed by the government. Companies that borrow more than £50 million are subject to restrictions on dividend payouts, share buybacks and senior-management pay.
Bounce Back Loan Scheme
The Bounce Back Loan Scheme (BBLS) provides six-year loans to small and medium-sized businesses of between £2,000 and up to 25% of the firm's annual revenue, up to a maximum of £50,000. The government guarantees 100% of the loan and there are no fees or interest for the first 12 months. After that, the interest rate will be 2.5%.
Value-added tax (VAT) payments were deferred between 20 March to 20 June, payable at the end of the 2020-2021 fiscal year.
On 23 March, the government announced that commercial tenants who miss a rent payment over the following three months cannot be evicted.
The government granted a 12-month, 100% business tax rates holiday to all retail, hospitality and leisure businesses. It also provided £25,000 grants to these businesses that operate from smaller premises. Residential mortgage lenders agreed to extend three-month payment holidays to their borrowers.
In July 2020, the government said it will give businesses a £1,000 bonus for each furloughed employee they bring on the payroll. It also reduced the sales tax at hospitality and tourism companies from 20% to 5% for six months.
Business Eviction Ban
On 16 September 2020 the government announced it was extending the ban on business evictions until the end of the year.
On 9 December 2020 it extended the ban another three months, until March 2021.
The Treasury said it would provide grants of up to £9,000 to retail, hospitality and leisure industry businesses, for a total of £4 billion. It said it was also creating a £594 million discretionary fund to support other impacted businesses. The action is expected to benefit over 600,000 businesses.
On 13 November 2020 the government said it would provide £2.2 billion in grants to U.K. businesses, including those that have had to close as a result of the virus and those that require further support in order to preserve jobs and protect communities.
On 24 December 2020 the government said it would provide an extra £800 million in guaranteed funding to support people, businesses and public services in Scotland, Wales and Northern Ireland.
Bank Of England Actions
The central bank has cut interest rates, reduced regulatory burdens on lenders, and created or extended loan programs for businesses of all sizes.
At a special meeting on 19 March 2020, the BOE's Monetary Policy Committee voted to cut its benchmark bank rate by 15 basis points to 0.1%. It also voted to increase its holdings of U.K. government bonds and non-financial investment-grade corporate bonds by £200 billion to £645 billion. The committee also voted to revise and enlarge its Term Funding Scheme (TFSME) for small and medium-sized enterprises (SMEs).
Over the ensuing 12 months, the TFSME said it will offer four-year loans at or very close to the bank rate to banks and building societies to encourage lending to small and medium-sized businesses.
Covid Corporate Financing Facility
The central bank also launched the Covid Corporate Financing Facility (CCFF), in which the bank will purchase commercial paper of up to one-year maturity from businesses that make a "material contribution" to the U.K. economy so that they may continue to pay their employees and their suppliers. The facility is "open to firms that can demonstrate they were in sound financial health"—i.e., investment grade—prior to the pandemic crisis.
The BOE and the Prudential Regulation Authority (PRA) announced the cancellation of the 2020 annual stress tests for the eight major U.K. banks and building societies "to help lenders focus on meeting the needs of U.K. households and businesses." This followed the decision by the BOE's Financial Policy Committee (FPC) to reduce banks' countercyclical buffer rate—i.e., the amount of capital they must set aside for bad loans—to 0% of the banks' exposures to U.K. borrowers, which is intended to enable lenders to make more loans.
On 20 January 2021 the BoE said it was resuming stress tests on U.K. banks, which it had cancelled in March 2020 so that the banks could concentrate on lending to consumers and businesses in need.
The new tests will assess banks and building societies "against a U.K. and global scenario that reflects a severe path for the current macroeconomic outlook."
Those scenarios include residential property prices dropping by a third and the unemployment rate climbing to 12%. It will also consider how banks can return to more normal dividend payments.
The BOE and the PRA asked U.K. banks to suspend dividend payments to shareholders for 2020 and any dividends that were still due for 2019 in order to preserve capital. The banks also agreed not to pay cash bonuses to senior management. The BOE said the measure will support up to £190 billion of bank lending to businesses.
On 10 December 2020 the PRA said the largest banks in the U.K. may resume dividend payments to shareholders and bonuses to employees in 2021, ending the ban placed in March. It said "any distributions should be prudent, reflecting the still elevated levels of economic uncertainty."
It added that it expected "to be satisfied that any distributions would not create excess vulnerabilities to stress for a given bank or impede its ability or willingness to support households and businesses."
Pending further PRA guidance at midyear, dividends would be limited to less than 0.2% of a bank's yearend 2020 risk-weighted assets or 25% of their profits over the past two years.
Banks were also told to exercise a high degree of "caution and prudence" in determining the size of any cash bonuses, it added.
Term Funding Scheme (TFSME)
In December the BoE announced a six-month extension of its Term Funding Scheme (TFSME) with additional incentives for small- and medium-sized enterprises (SMEs). The scheme was launched in March 2020 to provide term funding at or near the bank rate for SMEs.
This article was last updated on 9 February 2021.
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…