Covid-19 and Government Recovery Plans

As the rate of growth in cases of Covid-19 continues to slow, Governments are seeking to the find the right balance between equitably stimulating business and placing the economy on a sustainable footing. Amid all this, while health concerns and the feared ‘second wave’ pervade, disparities remain in how different jurisdictions are delivering an exit strategy. Our Public Policy Teams in London, Dublin, Brussels, Berlin, UAE, Saudi Arabia and Johannesburg are helping clients navigate Government recovery plans and below is a snapshot of these plans.  Should you wish to explore further or need advice on how to navigate these systems, please do get in touch. Contact:  lucy.cronin@instinctif.com

UK

Exit strategy for business

• As lockdown measures are slowly eased at different rates across the UK, Prime Minister Boris Johnson was reported to have taken more direct control of the Government’s handling COVID-19 amid growing criticism of its response.
• Parliament returned this week, signalling an end to the hybrid model that had allowed MPs to vote and participate in debates virtually.
• From Monday, almost all arrivals into the UK will be required to self-isolate for 14 days. The Government has faced criticism from MPs for not implementing it earlier and from the tourism and holiday sector who believe it will severely impact the summer holiday season and the economy. The Government will review the measures regularly and is said to be open to a policy of ‘air bridges’ with certain countries.
• The House of Commons Business, Energy & Industrial Strategy Select Committee has announced a “super-inquiry” titled “Post-Pandemic Economic Growth” which will look into the options available to the Government to help secure the economic recovery from COVID-19, covering investment, industrial strategy, jobs, skills, exports and sustainable growth.

Stimulus and economic measures

• Reports this week suggest the Treasury is preparing to increase Government investment in clean energy as part of an economic stimulus package. A fund to help re-skill workers in green jobs such as insulation upgrades, offshore wind and carbon capture is reportedly due to be announced next week.
• Amid concerns the Government will increase taxes to try and pay for its Covid-19 stimulus measures, the Prime Minister Boris Johnson has confirmed the Government will honour all its manifesto commitments which included promises not to raise the rates of income tax, National Insurance or VAT.
• Johnson has said it was inevitable there would be many, many job losses and guaranteed every young person in Britain an apprenticeship. He added that the Government would take an interventionist approach to ensure the UK bounces back sharply.
• The Financial Conduct Authority, the UK financial services regulator, has laid out support and guidance around mortgage payments during the pandemic. The regulator indicated that customers who were experiencing temporary payment difficulties were eligible for a full or part payment holiday until 31 October 2020. Until this date lenders will also not be allowed to repossess homes.

EU

Stimulus and economic measures

• The European Commission has proposed a modification to its budget for 2020 aimed at making €11.5 billion available immediately for crisis repair and recovery.
• The proposal represents a follow-up to the recovery plans put forward by the Commission last week. It aims to cover the funding for needed for the support of workers, businesses and Member States in the period until the ratification of the long-term recovery package.
• The European Central Bank (ECB) has dramatically increased its bond-buying programme in a bid to stimulate the Eurozone economy. Additional €600 billion will be added to the initial €750 billion pandemic emergency purchase programme (PEPP), which was launched in March.
• The period for the purchases under the PEPP has been extended until at least the end of June 2021 or “until [the ECB] judges that the coronavirus crisis phase is over.”

Germany

Stimulus and economic measures

The coalition committee has agreed on a comprehensive economic stimulus and future package to the tune of €130 billion. The package of measures includes, among others:

• Reduction of VAT: From 1 July to 31 December 2020, the VAT rate is to be reduced from 19 percent to 16 percent and for the reduced rate from 7 percent to 5 percent.
• Child bonus for families: Parents will receive a one-time bonus of €300 per child. For single parents the allowances will be doubled.
• Strengthening of the municipalities: The federal government will increase its share of the costs for the accommodation of needy persons. It will also compensate half of the loss of trade tax revenue for the municipalities and implement provisions to strengthen the local public transport and the health sector.
• Reducing electricity costs: The EEG levy is to be reduced from 2021 onwards through subsidies from the federal budget.
• Package for the future: Around €50 billion will be made available for innovations and sector of the future, such as the hydrogen economy, quantum technologies and artificial intelligence.

Ireland

Exit strategy for business

• The Irish Government looks set to confirm that it will move into Phase 2 of easing restrictions on movement, and business and social activity from 8 June.
• Phase 2 includes: conditional allowances for people to visit to other households; supports to open up business with consideration for safety of staff and customers; ability to open small retail outlets and marts where social distancing can be observed; and the reopening of public libraries.
• Under pressure from industry, the Taoiseach Leo Varadkar has conceded that the Government is now exploring ways of lifting some Covid-19 restrictions quicker than originally planned. He stated that he is awaiting advice from public health advisers before making a decision.
• The Department of Children and Youth Affairs has announced which groups of children would be eligible to resume full or part-time childcare services from 29 June. These include children of health and social care workers; vulnerable children; children with disabilities; and children previously registered in childcare services.

Stimulus and economic measures

• The Government has confirmed that a change to the Temporary Wage Subsidy Scheme will be made to accommodate the salaries of those who have returned to work after a period of maternity or adoptive leave and who may not have been on the payroll of their employer on 29 February, or been paid in either January or February 2020.
• The cumulative value of payments made to employers under the Temporary Wage Subsidy Scheme has now reached €1.31 billion.
• The Department of Business, Enterprise and Innovation announced that the Registrar of Companies has decided to extend the current arrangement in relation to the filing of annual returns until 31 October 2020.
• The Department of Rural and Community Development also announced funding of €10 million under the Outdoor Recreation Infrastructure Scheme for 2020. The funding which will support tourism and community wellbeing in post Covid-19 recovery.

KSA

Exit strategy for business

• Saudi Arabia has recently eased some Covid-19 restrictions. Starting from Sunday, movement is allowed daily from 6am until 8pm across the Kingdom, except in the holy city of Mecca.
• Mosques, except in Mecca, are now open for group prayers, as all employees were allowed back to their workplaces.
• Saudi authorities have stepped up a crackdown on businesses breaching rules to stem the spread of coronavirus – the municipal authorities closed 32 businesses and booked 2,256 others over the past three days for failing to abide by precautionary measures.
• A ban is still in place on certain activities that do not provide physical distancing such as barber shops, beauty salons, recreational facilities, cinemas and health clubs.

Stimulus and economic measures

• Saudi Arabia transferred SAR 150 billion ($40 billion) from its central bank’s foreign exchange reserves to its sovereign wealth fund, as it seeks to boost economic growth and take advantage of investment opportunities that have materialized amid the coronavirus outbreak.
• Saudi Arabia has also unveiled a new stimulus plan worth SAR 36 billion ($9.6 billion) for small and medium sized firms to offset the negative impact of the coronavirus; it mainly targets the construction sector

South Africa

Exit strategy for business

• Aviation: South Africa will permit limited domestic air travel from four main airports from next week, as the nation eases its Level 3 lockdown measures. The travel can only be for business purposes and passengers must secure authorisation of their reason for travel prior to departure.
• Stalling on Schooling: Hours before learners in Grades 7 and 12 were due to return to school on Monday 1 June, the Department of Basic Education announced the reopening has been postponed by a week. The Western Cape province responded by calling on parents to send students to school on Monday despite this ruling. As a result, the Human Rights Commission has threatened the Western Cape with legal action as it believes this violates the right to equal education for all.
• Home workers: Domestic workers employed in private households may return to work this week. Employers must issue them with a permit and ensure that adequate safety measures are in place.
• Testing backlog: Despite insisting that there was no backlog until recenlty, South Africa’s Covid-19 test backlog continues to sit at around 80,000.

Stimulus and economic measures

• National State of Disaster Extended: On 4 June, the Cabinet approved the extension of the National State of Disaster by another month, to 15 July. Level 3 and level 4 regulations and all health protocols remain in force.
• Tax shortfall: Business closures, coupled with the South African Revenue Service allowing companies more time for tax payments to be made, has led to a budget shortfall of R52.1 billion in April 2020. Finance Minister Tito Mboweni is due to present his adjusted budget in late June 2020, but he has already said that tax collections could fall by as much as 32 per cent.
• Jobs: The National Treasury has warned that it forecasts that the impact of coronavirus, and the resulting lockdown period, could lead to job losses of between 690,000 and 1.79 million. A worst-case scenario would push the unemployment rate to over 50%.
• Exports: South Africa has seen a 55% slump in exports as a result of the national lockdown’s impact on mining activity, which accounts for approximately half of the country’s outward shipments.
• Currency: The rand (ZAR) gained about 4% this week due to a general emerging market rally driven by investor bets that a global economic recovery was developing after the coronavirus fallout.

UAE

Exit strategy for business

• 50% of UAE government employees are to return to offices, as office capacity limits will be increased to 50% from 35% starting on 7 June. Distancing and health measures will remain in place to ensure safety.
• The UAE will resume commercial passenger flight operations at its airports across the country, a senior official confirmed on Wednesday 3 June, with the final date yet to be confirmed.
• Two of the UAE’s leading gold retailers shut down stores, delaying re-opening as they await rent relief to counter the COVID-19 impact on gold demand.

Stimulus and economic measures

• Malls and private sector businesses in Dubai are back to 100% capacity from Wednesday 3 June onwards, as confirmed under the directive of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of UAE and Ruler of Dubai.
• The Abu Dhabi Fund for Development (ADFD) on Sunday 31 May announced a AED 1 billion initiative to support national companies that have seen their businesses affected by the COVID-19 pandemic.