Treasury and Exchequer
Ministerial Decision Report
co-funded payroll scheme phase 4
- Purpose of Report
An amendment to the Co-Funded Payroll Scheme (CFPS) to establish Phase 4, which will take effect for claims made in respect of January and remain in place for subsequent months, and an allocation from the Covid-19 Reserve to meet associated costs.
- Background
The Government Plan 2021-2024 provides £40 million as a Covid-19 Reserve within the General Reserve for Covid-19-related funding needs that cannot be met from existing heads of expenditure in 2021.
The Minister for Treasury and Resources approved MD-TR-2020-0049, to establish the Co-Funded Payroll Scheme Phase 2, and MD-TR-2020-0063 and MD-TR-2020-0100 to extend the scheme until 31st August and 31st December 2020 respectively. Through MD-TR-2020-0168, the Minister increased the level of support provided by the CFPS. In MD-TR-2020-0100 and MD-TR-2020-0168, the Minister indicated an intention to extend the Scheme into 2021 subject to approval by the States Assembly of the Government Plan 2021-24.
CFPS Phase 4
On 22 December changes to the Co-Funded Payroll Scheme Phase 3+ were introduced to respond to the introduction of the Winter Strategy Circuit Breaker, which required the closure of several business sectors including bars, restaurants, indoor sports facilities, non-essential retail, hairdressers and beauty service providers.
The revised Scheme increased the maximum subsidy payable to 90% of £2,000 (a payment of £1,800) and changed the basis for calculating subsidies to the percentage fall in income plus 20%, thereby providing a higher level of subsidy to businesses suffering a moderate detriment as a result of the Circuit Breaker.
When the changes to the CFPS were agreed in December it was anticipated that at least some of the sectors that had been required to close would be able to re-open in mid-January and that all sectors could conceivably resume trading within the month. It has subsequently become necessary to extend the Circuit Breaker and consequently no sectors are currently expected to re-open in January, which will have a significant impact on the businesses affected.
In light of the requirement to extend public health restrictions and following further representations from businesses about the severe impact these restrictions are having on their cashflow, Ministers, having requested options be developed at short notice, have decided to increase the level of support provided by the CFPS for the sectors that are most severely affected and to establish CFPS Phase 4.
CFPS Phase 4 will extend the duration of the scheme for all qualifying sectors until 30 April 2021 and introduce the following changes for businesses that have been required to close under the Winter Strategy Circuit Breaker and food/beverage wholesalers:
- Increase in the maximum monthly wage subsidy from 90% of £2,000 (i.e. a payment of £1,800) to 90% of £2,500 (i.e. a payment of £2,250) per worker per month
- Amend the methodology for calculating the level of subsidy available to a businesses from the percentage fall in income plus 20% to plus 30% thereby increasing the level of subsidy provided to businesses suffering moderate levels of detriment
- Provide the ability to claim a subsidy for higher paid employees earning between £4,610 and £8,840 consistent with self-employed workers.
- Grant additional flexibility for businesses usually closed for all or part of Winter
Throughout the pandemic, the aim of the CFPS has been to sustain businesses, employment and livelihoods. These changes will ensure that the Scheme remains able to deliver those objectives.
Through the extension of the Scheme for all participants until April 2021, businesses that continue to be affected by the economic consequences of Covid-19 can rely on a high level of wage subsidy being provided until there have been material improvements in the public health context and substantial progress has been made with the Covid-19 vaccination programme.
Other economic support measures
Ministers have also agreed to defer the payment of GST and Social Security contributions for the first quarter of 2021 (known as ‘A quarter’ for Social Security) for the businesses that qualify for the enhanced CFPS support outlined above. This additional support will provide much needed liquidity to businesses to help ensure they are able to remain solvent until restrictions can begin to be relaxed again.
A Fixed Cost Subsidy Scheme is also being developed by the Office of the Chief Executive and will be launched by 15 February 2021. This Scheme will make monthly payments of between £3,000 and £10,000 per business whilst businesses are closed and 50% of the relevant amount when businesses can re-open but remain impacted by public health measures such as the requirement to maintain 2-meter social distancing.
Risks
The risks inherent in the CFPS are greater than would normally be acceptable by Government Ministers and these changes will increase the risks, particularly those linked to deadweight loss, fraud, and the increased risk of default in respect of Social Security/GST deferrals. However, Ministers involved in the development of the scheme have acknowledged and agreed to accept the increased risk given the potentially substantial economic and social benefits of the scheme and the continuing unprecedented threats to the economy posed by the Covid-19 pandemic.
- Recommendation
Due to the urgent need to provide additional support, it has not been possible to prepare a suitable business case for this variation to the CFPS. Given the approval of the amendment by the Competent Authorities Ministers and Ministers responsible for the CFPS, the Minister is satisfied that there is an urgent need to provide funding in the public interest and that threats posed to the economy warrant the higher than normally acceptable risks inherent in this enhancement of the CFPS, including the inevitable dilution of the Scheme’s efficiency. Accordingly, the Minister has instructed officers to implement the changes approved by Ministers on 20th January 2021.
On the basis of the above and the likely estimated costs, the Treasurer recommends an allocation from the Covid-19 Reserve within the General Reserve as the most appropriate source of funding
- Reason for Decision
Article 15(3) of the Public Finances (Jersey) Law 2019 states that the approval by the States of a Government Plan authorises the Minister to direct how an approved appropriation for a reserve head of expenditure in the plan may be spent (including on another head of expenditure) in the first financial year covered by the plan.
The current Policy for Allocations from the Reserve agreed by the Minister for Treasury and Resources on Friday 17th July 2020 sets the requirement for all allocations from the General Reserve (Covid-19) once approved by the States Treasurer to be referred for review to either the Council of Ministers or the relevant Competent Authorities Ministers and to seek comments from the Principal Accountable Officer (PAO) prior to submission to the Minister for approval. However, it also states that ‘Where a request is made for £100,000 or less, or where the Minister is satisfied that there is an urgent need to provide funding in the public interest, an allocation may be made by the Minister on the recommendation of the Treasurer.’
The revisions to the CFPS and adoption of CFPS Phase 4 was agreed by the Competent Authorities Ministers and the Ministers responsible for the CFPS on 20th January 2021.
Given the approval of the amendment by the Competent Authorities Ministers and Ministers responsible for the CFPS, the Minister is satisfied that there is an urgent need to provide funding in the public interest and that threats posed to the economy warrant the higher than normally acceptable risks inherent in this enhancement of the CFPS, including the inevitable dilution of the Scheme’s efficiency. Accordingly, the Minister has instructed officers to implement the changes approved by Ministers on 20th January 2021.
In light of the above and the likely estimated costs, the Treasurer recommends the Covid-19 Reserve within the General Reserve as the most appropriate source of funding
The Minister for Treasury and Resources approved MD-TR-2020-0049, to establish the Co-Funded Payroll Scheme Phase 2, MD-TR-2020-0063 and MD-TR-2020-0100 to extend the scheme until 31st August and 31st December 2020 respectively. In MD-TR-2020-0100 and MD-TR-2020-0168, the Minister indicated an intention for extend the Scheme into 2021 subject to approval by the States Assembly of the Government Plan 2021-24.
The Minister noted the intention for the Comptroller of Revenue to issue direction using powers given to him under Article 41(1) of the GST Law 2007 (as amended).
Additional costs incurred in 2021 will be met in the first instance from the £40 million Covid-19 Reserve available within the General Reserve.
- Resource Implications
The additional costs arising from this decision are forecast to be up to £11.7 million in 2021 under the central scenario. Costs may be higher or lower depending the strength of the Island’s economic recovery.
The Covid-19 Response Head of Expenditure makes available £11.3 million for this purpose in 2021. This budget was based on the original CFPS Phase 3 that tapered the level of support available under the Scheme between September 2020 to March 2021. Following TR-2020-0168 a higher level of support is now available than was budgeted for in the Government Plan 2021-24. The additional cost in 2021 associated with that decision and the decision to extend public health measures is estimated to be £27.2 million under the central scenario. Costs may be higher or lower depending the strength of the Island’s economic recovery.
The total funding requirement for 2021 under the central scenario is £38.9m, being £27.2 million arising from TR-2020-0168 and £11.7 million arising from this decision. This results in an additional requirement from the Reserve of £27.6 million after taking into account the £11.3 million budget already available for the Scheme in 2021.
The Covid-19 Reserve within the General Reserve will decrease by £27.6 million and the Covid-19 Response Head of Expenditure will increase by a corresponding amount.
It may be necessary to increase the allocation of funding to the CFPS depending on the Island’s economic recovery.
Report author: Head of Investment Appraisal | Document date: 28th January 2021 |
Quality Assurance / Review : Head of Financial Governance | File name and path: L:\Treasury\Sections\Corporate Finance\Ministerial Decisions\DS, WR and SD\2021-0011 - Co-Funded Payroll Scheme Phase 4 |
MD sponsor : Treasurer of the States |