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During the Covid-19 outbreak the UK government is offering to pay upto 80% or a max of £2500 per month to prevent employers laying off workers;

Furloughed workers If you and your employer both agree, your employer might be able to keep you on the payroll if they’re unable to operate or have no work for you to do because of coronavirus (COVID-19). This is known as being ‘on furlough’.

Your employer could pay 80% of your regular wages through the Coronavirus Job Retention Scheme, up to a monthly cap of £2,500.

In some instances wealthy individuals and companies are using this government fund to pay employees instead of taking the burden on personally/commercially which would be entirely feasible for them. This has created anger towards these people/companies.

However, as I understand it, the money that the government pays out will no doubt be recouped by the government at some point through an increase in personal income tax/VAT(Sales Tax)/Corporation Tax or a combination of all three. In which case the government is essentially providing a loan with repayment an expectation. Is this correct? in which case it would be perfectly reasonable for employers to use the Coronavirus Job Retention Scheme even if they could afford to make the payments themselves rather than laying off the workers.

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It is not correct to say that the Coronavirus Job Retention Scheme is essentially providing loans.

A little background. The UK government currently has two major schemes to support businesses and through them their employees: the Coronavirus Business Interruption Loan Scheme for small / medium businesses together with a similar scheme for large businesses, and the Coronavirus Job Retention Scheme.

As their names suggest, the former is a loan scheme, the latter isn't. As you imply, the cost to the government of the Coronavirus Job Retention Scheme will have to be funded somehow, probably initially by extra government borrowing, but perhaps eventually by increased taxation. Depending on the form of taxation, some of the burden of that extra taxation might fall on the businesses and/or employees who benefited from the Scheme.

However, there is no reason to expect that there would be any close match, at the level of individual businesses, between their receipts from the Scheme and any extra taxation they might have to bear. Corporation Tax, for example, is subject to complex rules which bear little relation to eligibility for receipts under the Scheme. It would not be correct therefore to regard the Scheme as offering loans with an expectation of repayment.

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  • $\begingroup$ How can you be sure that an increase in corporation tax won't be equivalent to the receipts under the scheme. If a business has paid out say 3 months of wages for 2 employees employer totaling £18k it's not hard to imagine that any change in taxation to a business with revenue in the tens/hundreds of millions won't end up paying for that. $\endgroup$ – Naz Apr 27 at 11:14
  • $\begingroup$ @Naz I can't be sure that it won't be equivalent for some businesses. But if the extra tax paid by a business were to match their receipts under the Scheme, that would just be coincidence. $\endgroup$ – Adam Bailey Apr 27 at 19:40

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