Free Handouts or a Genuine Lifeline? How Councils are ‘Managing’ the COVID-19 Financial Support Programme
Deserted streets, closed or shuttered shops, hotels and restaurants. It’s like a scene from any one of a dozen end of the world movies. The one though, that leaps to mind most powerfully is “Years and Years”, aired on the BBC in May last year.
It tells the story of an ordinary British family as it contends with the hopes, anxieties and joys of an uncertain future in a series that “begins in 2019 and propels the characters 15 years forward into an unstable world. As the Britain of this imaginary drama is rocked by political, economic and technological advances, the family experiences everything hoped for in the future, and everything that is feared.” As for all of us in Spring 2020, we now confront our own version of what would have seemed like a fictional scenario only months ago.
We want to look at one aspect of this crisis that has been overlooked, and it’s where the “generosity” of the state meets with personal greed, possible fraud and local authority incompetence.
Few would argue that the Government acted swiftly with its financial rescue package. It wasn’t by any means, a perfect and comprehensive package and it’s in its imperfections that the dangers lurk.
For example, any business whose property’s rateable value is less than £15,000 does not pay business rates, and therefore will receive a £10,000 grant, provided they are not subject to bankruptcy and administration orders. You only have to answer with name, address, rates reference, business name and address, trading status, company and VAT number if registered and bank details for payment. You also need to send a copy of a bank statement or a copy of a cheque.
And that is that!!! So, fill in the form, collect £10,000 – lovely jubbly!!!!
For the Retail, Leisure and Hospitality Grants Fund, businesses that would have been in receipt of the Expanded Retail Discount Scheme with properties that have a rateable value of under £51,000 are eligible for cash grants of up to £25,000 per property.
So, by way of example, according to the Folkestone March 2020 business rates register, there are seventeen “hotels” eligible under this grant. This includes Wards, the Carlton, the View and under the umbrella of Hallam Estates Ltd, the Grand. Hallam also has seven self-catering holiday units on this list*.
The question that troubles us is that there is no evidence of any due diligence being applied to the recipients of this taxpayers’ largesse. Some, if not most, are well run, pay their bills as they fall due and have never crossed swords with HMRC. On that basis, some extra cash can make all the difference over the coming weeks.
But when you hear of one company that is teetering on the edge of bankruptcy, saved only by the delays in the insolvency process thanks to the pandemic, that owes money to at least three local suppliers and is bouncing cheques, and allegedly cannot afford to refund deposits on cancelled room bookings so those who’ve made them say; then you have to ask if this is a fair and proper use of public funds?
Is our Council [FHDC] aware that a business which fails the “undertaking in distress test” is ineligible for payments under the COVID-19 Temporary Framework for UK Authorities. One of the criteria, as published by the Department of Business, Energy and Industrial Strategy is as follows:
Para: 76: “Where the undertaking is subject to collective insolvency proceedings or fulfils the criteria under its domestic law for being placed in collective insolvency proceedings at the request of its creditors.”
This is actually based on EU Law regarding state aid., Article 2, paragraph 18, and this applies to any form of state aid to business and industry.
The word “distress” certainly applies to Hallam Estates Ltd. as we reported on March 8th. A subsequent application by Hallam for a stay of proceedings to avert liquidation was also dismissed on April 17th.
Now let’s look at the COVID-19 job retention scheme. The scheme allows firms to furlough employees with the government paying cash grants of 80% of their wages up to a maximum of £2,500, and was originally open for three months and backdated from the 1 March to the end of May. It’s now got another month’s lease of life. Just as well otherwise millions of people would have started received redundancy notices on the 17th April. Well-known TAX blogger, Richard Murphy argues:
“This single act proves is that many of those furloughed are actually unemployed. Many are unlikely to have jobs to go back to. The government knows that. That is why they had to avoid them being declared redundant”.
Murphy goes on to argue:
“…..when furloughing employers go bust anyway, come what may, and their staff then move to universal credit, which will create mass poverty on a scale most have been able to ignore to date amongst those on this benefit.”
Our question goes to the very heart of this programme and how it impacts the hospitality trade, which in Folkestone represents around 10% of the workforce. When our hospitality bosses decide who to lay off and who to furlough, what criteria do they use? Most hospitality contracts are zero-hour ones, and for these folks, the furlough pay would be:
Earnings in the same month of the previous year or
Average monthly earnings from the 2019/20 tax year
Tips are excluded from this calculation. As to when the cash gets paid to employees, according to finance guru Martin Lewis’s MoneySavingExpert’s website:
“The scheme opens to employers tomorrow morning (Monday 20 April at 8 am), with the first payments being made “six days” later, the delay being due to fraud checks and BACS transfer times. Payments will start coming through around 27 or 28 April. This first payment will cover March and April’s wages for eligible furloughed employees.”
If you’ve been paid as normal, this won’t affect you, as it’ll just be your employer claiming for salaries they’ve already paid out, or are about to pay out.
Yet, we know employers have struggled for cash flow, with some telling employees they can’t afford to pay their wages until the grants come in. So, the next question is, what if your employer goes bust? If the company goes into administration, the administrator (the company now overseeing your employer’s affairs) would be able to access the Job Retention Scheme – so long as you were on your employer’s payroll on 19 March. However, the administrator would only be able to do this if there was a reasonable likelihood of the employee being re-employed by the company, for example, if the administrator thinks it can sell your employer’s business as a “going concern”. Not much chance at the moment in the hospitality sector.
So, who are the key personnel that a local hospitality employer would choose to furlough, and who to lay off? The only real answer would be at our local Job Centre. We can be confident however, that general managers won’t be worrying, or at least not this one. This was posted by Robert Richardson on his Twitter feed (below) on April 12th, as he pursues his course in Revenue Management, even though not one of the companies he oversees at the Grand has shown a profit, according to Companies House.
* Holiday lets: These present an interesting situation. If you make your holiday home available to rent for short periods over 20 weeks or more in a year (140 days), it’s classed as a self-catering property and you should register it for business rate property tax rather than paying council tax on holiday lets. Seven of the Hallam units are registered as such. The other eleven are not. Why? These are all owned in fact by one or other of the Stainers in their private capacity, so why is a company with which Michael Stainer has no connection picking up the tab for the rates on seven of their properties — £12,667.80 this tax year, to be precise? Maybe it’s payment for Mrs Stainer’s role as company secretary? Who’s paying the Council tax on the others?
The Shepwayvox Team
Stay At Home – Protect The NHS – Save Live
Coronavirus help for employees
The amount the Government will pay will be 80% of your usual pre-tax monthly salary, as it was in their last pay period before 19 March 2020 (this will likely be February’s pay).
The problem is that local councils are now expected to carry out a function for which they are ill-equipped, namely handing out state aid money as fast as possible. The local systems in place to monitor this process and to ensure it is in conformity with legislation almost certainly don’t exist. So through no fault of their own, councils will be paying out money to cowboy near-bankrupt companies whose problems long predate the present crisis, as well as to thoroughly deserving companies. I’m sure FHDC will do its best, but the rogues will slip through……..