Coronavirus: government support for businesses during the first lockdown

The Covid-19 pandemic has caused major social and economic disruption. Following the announcement on 23 March 2020 of a ‘lockdown’ across the four nations of the UK, the government put in place a series of financial measures to mitigate the short-term effects of these restrictions.

The financial measures announced by the government during the first lockdown fell broadly into two categories – those aimed at business and those aimed at individuals. In addition to this direct support, the Bank of England, the UK’s central bank, took action to help ensure businesses had access to low-interest loans and to ensure that the markets for UK government bonds continued to function. This explainer summarises the support that was offered to businesses; others look at support for individuals, and the actions taken by the Bank of England.

At the start of the first lockdown, it was not clear how long such restrictions would last. And in the months since that lockdown was eased, in the summer of 2020, each of the four nations has faced further restrictions, many of which have carried on into 2021. This has led to many of the support measures being extended. Our explainers on support currently available to businesses and individuals summarise these in more detail.  

What did the government do to support businesses?

In the spring and early summer of 2020, businesses across the UK experienced a sharp fall in revenues because of mandated closures, disruptions to their supply chains or major losses of custom.

The government provided them with assistance by:

• paying grants or cancelling tax liabilities – with businesses never being required to repay the money or the tax at a later date
• deferring tax payments
• providing businesses with low-interest loans.

Grants and tax cuts

Business rates holidays

The government cancelled business rates payments for 2020/21 for businesses in England in the retail, hospitality and leisure industries and for nurseries.

The Scottish and Welsh governments also cancelled business rates payments in 2020/21 for businesses in the retail, hospitality and leisure industries. Northern Ireland offered a four-month holiday for all businesses from non-domestic rates (equivalent to business rates), and a 12-month holiday for businesses in sectors such as hospitality and retail that were hardest hit by the lockdown restrictions.

Cash grants

The government also provided cash grants to some businesses, some of which were targeted at specific industries. The UK government provided a cash grant worth £25,000 to businesses in England in the retail, hospitality and leisure industries with a ‘rateable value’ between £15,000 and £51,000. Businesses in the least valuable properties in England benefitted from small business rates relief (SBRR), regardless of what sort of business they undertook. Those with a rateable value below £12,000 paid no business rates at all, while those with a rateable value between £12,000 and £15,000 got a discount. All businesses eligible for SBRR also received a £10,000 cash grant.

The devolved administrations in Wales, Scotland and Northern Ireland provided equivalent grants for the retail, hospitality and leisure industries, as well as SBRR.

A £10,000 grant was also paid to all businesses eligible for rural relief, which covers low-value properties in sparsely populated areas. These grants were administered by local authorities.

The government announced a three-month scheme to provide up to £9 million in grants to the fishing industry and a further £1m to help fishermen find alternative local markets for their catches. Fishermen were eligible if they operated a boat under 24 metres in length and recorded sales of £10,000 or more in 2019. Businesses that farm fish and shellfish were also eligible.

The government also gave an additional £550m to Innovate UK, the public body responsible for increasing innovation, to distribute to research and development-intensive small and medium-sized enterprises (SMEs; those with fewer than 250 employees).

Statutory Sick Pay (SSP)

Ordinarily, SSP must be provided by employers to all employees earning above an average of £118 per week from the fourth consecutive day of illness and for up to 28 weeks. SSP is paid at a rate of £94.25 per week and is financed by employers.

In response to the pandemic, the government announced it would reimburse SMEs for up to 14 days of Covid-related sick pay per employee from the first day of absence. This included periods when an employee was off work because they were self-isolating, even if they were not sick themselves. This was worth up to £188.50 per affected employee for qualifying employers.

Tax payment deferrals

Businesses were able to defer VAT payments that were due to be made between March and June 2020. Businesses must either repay this amount in full by March 2021 or opt into the new VAT payment scheme, outlined in our explainer on current coronavirus-related financial support for businesses.

Low-interest loans

Covid-19 Corporate Financing Facility (CCFF)

The government supported large (non-financial) businesses by buying unsecured short-term corporate debt (known as ‘commercial paper’). Effectively, this meant providing short-term loans so that companies had easy access to cash. The CCFF offered finance at a rate “comparable to those prevailing in markets in the period before the Covid-19 economic shock”.

The Bank of England  acted as the Treasury’s agent to implement this scheme and these purchases were paid for by printing money.

Firms were eligible if they made “a material contribution to the UK economy”. Companies in receipt of CCFF finance were asked by the government not to pay dividends and to limit senior pay and cash bonuses.

Coronavirus Business Interruption Loan Scheme (CBILS)

The government made it easier for SMEs to access low-cost loans. The government guaranteed 80% of the value of loans made by participating lenders. Loans could be made up to a value of £5m and the government also committed to paying the first 12 months’ interest. This scheme was available for businesses with annual turnover of up to £45m.

The guarantee meant that, if a business failed, the government would pay 80% of the outstanding loan. The scheme was designed to reduce the risk to lenders and so encourage more lending.

Bounce Back Loan Scheme

Bounce Back Loan Scheme – launched in response to concerns that SMEs were struggling to access loans through the CBILS – offered a simplified two-page application process and a 100% government guarantee on the debt.

The scheme was intended to increase banks’ willingness to grant loans, as they would not lose any money were businesses to default. The loans were for up to 25% of a business’s annual turnover, up to a maximum loan of £50,000. The government also committed to paying the first year’s interest.

Coronavirus Large Business Interruption Loan Scheme (CLBILS)

At the outset of the pandemic, the government also announced a scheme to provide loans for businesses who were too big to qualify for the CBILS but for whom the CCFF was not a viable or attractive option.

The government guaranteed 80% of loans up to a value of £25m for businesses with turnover above £45m, and up to £200m (originally £50m) for firms with a turnover over £250m. Loans were capped at 25% of turnover. The loans were provided by 27 participating lenders. Unlike the scheme for smaller businesses, the government did not cover interest payments for the first 12 months. As with the CCFF, companies in receipt of loans larger than £50m were restricted as to dividends, share buy-backs and senior pay.

Other loans

The government also offered loans of between £125,000 and £5m to UK-based companies, to match funding raised from private investors. To be eligible businesses had to have previously – in the last five years – raised at least £250,000 in equity investment from third parties. This fund was designed to help those businesses (particularly start-ups) which did not typically qualify for bank loans and instead were reliant on equity investment. These loans were issued by the British Business Bank and were convertible – that is, the loan will convert into equity at the company’s next qualifying funding round.

Other business support

The emergency Coronavirus Act 2020, passed on 25 March, contained measures to prevent commercial tenants being evicted if they fell behind on their rent. This provision was meant to last until June 2020 but was later extended.

On 4 June, the government also announced a new scheme to guarantee up to £10bn of transactions through the Trade Credit Reinsurance Scheme. Trade credit insurance protects businesses against default of payment from companies they are selling goods to. In return, participating insurers committed to forgo profits and senior staff bonuses related to their trade credit insurance business.