Chief Minister’s Statement To Parliament - Continued Assistance For Businesses Announced

Here’s the full text of the Chief Minister’s statement to Parliament this afternoon:

Mr Speaker

Yesterday afternoon I addressed the European Union Select Committee of the House of Lords at Westminster.

In fact, neither those asking the questions nor those of us answering, were in Westminster.

Their Lordships were in their respective homes and I was here in Gibraltar.

I was able to answer questions from their Lordships on the ongoing negotiations for a future relationship between the United Kingdom and Gibraltar and the European Union.

I was also able to address matters related to how we had dealt with the Coronavirus pandemic and the interplay between that difficult time and the EU negotiations.

Mr Speaker, as I told the House of Lords yesterday, I remain confident that with goodwill, energy and enthusiasm we may be able to deliver a positive outcome for these negotiations in coming months.

I will endeavour to keep the House and the public abreast of all developments.

The Deputy Chief Minister and I have already briefed the Leader of the Opposition and the Honourable Lady on the details of what is happening in respect of the discussions on foot.

We will continue to do so as matters progress.

Mr Speaker, it is also important that I should now move on to the economic assistance measures we will be introducing to support our business community after the end of this month, the end of the second quarter of the year, once the original BEAT COVID measures expire.

Government stands by and with our private sector employees and our business community as we have demonstrated these past months.

We have worked with the representatives of both employees and businesses in this difficult period. 

We have propped up businesses that have been closed by us with payments to ensure their employees had income to put food on the table.

So that no family went without.

We stand shoulder to shoulder with employees and with businesses.

It is now time to shift that support to the next level as businesses begin to re-open in a new and challenging environment, where continued support is required, but where we also need to stimulate and encourage more commercial activity.

We need to start the move back to a market economy.

But we must do so, knowing that there is not much of a market out there – or at least not as much of a market out there as there was.

And in that stance, we have sought to introduce measures that intervene as little as possible whilst providing as much support as possible.

This is undoubtedly a difficult balance.

 As a Government, we want to support business through this difficult period but equally we do not want to dictate how businesses are run.

And we do not want to create market unfairness with the way that we ensure that we provide the help required to ensure that there is no severe social consequence from rising unemployment.

We also appreciate that businesses need certainty, and therefore, the majority of these measures will apply for the full 3rd quarter of 2020 (July to September) except where I explain otherwise.

And so these measures are intended to support our business community and be better able to face the challenges our economy faces.

The measures are designed also to provide support for continued employment – but ensuring that employees are now  paid by their employers and not directly by the taxpayer.

I can report that we have continued to discuss these issues and the measures we are going to propose today with the Covid Emergency Liaison & Advisory Committee (CELAC).

I am grateful to each of the CELAC representative groups: the Chamber of Commerce, GFSB, Unite, GGCA, the Finance Centre Council, the Gibraltar Betting and Gaming Association and the Landlords Association who have been instrumental in guiding our thinking as we have formulated these new measures.

I would like to take the opportunity also to thank each of them for their productive and fruitful engagement.

I have today also informed the Leader of the Opposition and the Hon Roy Clinton of these measures. 

Given the time constraints, it has only been possible to discuss this with them briefly and I have invited their further thoughts and comments in coming days.

I look forward to a further discussion with them as we prepare the necessary legislation to give effect to these measures.

As we have to date, we will be open to any suggestions they may make that we might be able to agree to improve these measures in some way.

I have also sent the Honourable Lady an advanced copy of my statement this afternoon.

The measures that we intend to give effect to are as follows;

Import duty

First of all, I will make a statement early next week on our proposed changes to the payment of Import Duty which will be effective for the third quarter of 2020.

As is the custom, I will announce these on the same day they come into force.

However, I can report that the exemption for motor vehicles will be extended for one final month.

This has been a positive example of a measure that has stimulated a sector of our economy that would otherwise have closed and relied on direct Government support.

It is interesting for the House to know that this measure alone has resulted in a BEAT payment saving of some £1.4m whilst at the same time stimulating economic activity and creating confidence as we emerged from lock down.

This is also a sector that employs many hundreds of people and supports many more families in Gibraltar.

It is a sector that invests in people, through training and in successfully marketing their goods and services well beyond our frontiers.

In addition, the very good news is that the cars that have been purchased over the past quarter are more environmentally friendly than the cars that are being replaced, so this is a measure that also has a positive environmental impact.

It will be interesting for the whole community to note that the mix of vehicles purchased and ordered in May and June is just shy of 20% for hybrids and electric vehicles.

That means that we are adding one fifth of the new cars on our road to the ranks of hybrid, and to a lesser extent electric, vehicles. A very positive change.

Rates

Government will offer a further 25% discount on its early repayment discount scheme for rates across all sectors.

This enhanced rates discount will apply to all businesses who did not have rates arrears as of 31 March 2020, and who pay their rates on time.

For example, if a restaurant business has a rates bill of £1,000, it would ordinarily pay £500 with the early payment discount of 50%. With the new discount scheme, the business would receive an enhanced early repayment discount of 75% and pay only £250 if it pays early.

As at 31 March 2020, I can confirm that 92% of all businesses had paid their rates on time. This is a trend that I hope to see continued and improved throughout this 3rd quarter.

This enhanced rates discount will not apply to supermarkets and pharmacies, but will apply to all other sectors.

The rates discount will only apply to commercial property and will not apply to residential property.

Rents

Different percentages will apply in relation to rents.

 - Government will apply a 50% discount to all its commercial tenants for Q3.

- Businesses that have enjoyed a commercial rent reduction for the 2nd quarter in 2020 will see Government once again encourage private landlords to give  these businesses a further rent discount of 25% for the whole of this 3rd quarter.

As we did in the 2nd Quarter, HMGoG will encourage private landlords to offer this reduction in rent by applying a tax of three times to that part of the rent that the landlord has refused to discount.

Further and additionally, if the discount is not applied, their commercial tenants will be entitled to a three times reduction from tax assessment of that unreduced element of rent.

By way of example, if a tenant is paying £1,000 rent a month we would expect this to reduce to £750.

Landlords who do not participate will be taxed on a total rent for the month of £1,500 and the tenant will be allowed a total deduction for rent for the month of £1,500 too.

- Any rental increases due in any commercial premises for the period 1st July 2020 to 31st March 2021 are hereby suspended for this period.

- This applies to Government commercial tenancies as well as private landlords and their commercial tenants.

This means that until 1st April 2021, no business will face a rental increase.

We will shortly be introducing legislation to implement this measure.

- Further, Government will be waiving all tables and chairs licence fees for external areas in their entirety up to and including 31st March 2021.

- Private sector landlords will also be required to reduce these rental or licence fees for tables and chairs by 50% in the same manner that I have already described for private sector rents, also until the 31st March 2021.

In order to avail themselves of these rent measures, the tenant must not have rent arrears as at 31 March 2020.

- Government will also provide an arbitrator to private landlords and tenants in order to settle any dispute in respect of the distress relief fund that they have voluntarily established and which we welcome.

The intention behind these measures is to soften the blow of fixed costs which we are seeking to reasonably mitigate, as businesses begin to emerge from lockdown in this difficult period.

In respect of these measures, I should also record that I have also held a productive and informative meeting with the Gibraltar Catering Association and some of their suggestions are reflected in the measures I am introducing today.

I thank the Chairman of the GCA, Gina Jimenez and his team for their very open and positive engagement with us.

Terminations

We have protected the job market by taking a snapshot of our economy as at 15 March. This has worked as intended. During a period of the utmost uncertainty, we have provided stability and certainty. We must now move on to the next phase.

As from 1 July 2020, all those businesses from the excluded sector who did not benefit from BEAT payments will be able to process terminations through the Department of Employment in the normal manner.

These businesses have not taken the Queen’s shilling and they should not be subject to this Parliament’s lock on the way that they do business.

The same holds true for any business from the included sector that did not receive BEAT, who will also be able to terminate employment in the usual way.

BEAT 2.0

As businesses emerge from the extraordinary Lockdown, Government’s focus moves from supporting individual employees (BEAT 1.0) towards supporting the business itself.

We are seeking to ensure that these businesses have the resources they need to be able to bounce back from this crisis, as the safety net we have provided will reduce as they rebuild their own liquidity and resources. We need them to be able to operate as fully as is possible and in compliance with the Unlock the Rock guidelines.

As the BEAT payments continue as a grant, the business is able to use the support it receives from Government towards meeting its ordinary course of business expenses. It is not a payment that it requires to pay-on to designated employees in a prescribed sum as was the case with BEAT Version 1.0.

These payments will continue throughout the entirety of the 3rd quarter (July, August and September) and any business who received a BEAT COVID-19 Contribution and any self-employed person who received a BEAT COVID-19 Payment will qualify automatically for the new BEAT.

There are some exceptions, such as businesses that are deemed by Government to be in substantive operation throughout. This exception would apply for example to the larger businesses in the construction and ship repair industries who are in substantive operation.

The new BEAT payment will be calculated as an average of the payments that each firm or self-employed person received over the months of April and May. Once we determine the average for these months, the amounts to be paid for July, August and September will reduce on a sliding scale.

This scale will be set at 60% for July, 40% for August and 20% for September. This will give businesses today the certainty that they themselves can calculate the amounts that they will receive over the entirety of the next quarter and plan accordingly.

Businesses will also have the greater part of the support in the first month. This will provide liquidity at a time when they face the biggest challenges as they work to return to normal business operation.

As an example, a business that received £12,000 in April and £8,000 in May would have had an average over both months of £10,000. This business would then receive £6,000 for July, £4,000 for August and £2,000 for September.

The new BEAT scheme will follow a very simple automated system where Government will itself contact businesses by email and ask them to confirm whether they agree to comply with the new BEAT terms. A simple email response will then enable monthly payments to the same bank accounts into which businesses received their original BEAT COVID-19 Contributions or Self-Employed BEAT COVID-19 Payments.

Businesses in the included sector that did not avail themselves of BEAT 1.0 as a gesture of goodwill shall nevertheless exceptionally be considered for grants under BEAT 2.0 on application. Each case will of course be considered on a case by case basis.

The new BEAT will only be paid to businesses that are operating in accordance with the guidelines set out in our Unlock the Rock document. For example, a restaurant that is allowed to open with 50% capacity but chooses to remain closed will be automatically excluded from the new BEAT.

There will be more technical announcements that we will make in due course to cover erroneous payments and appeals from the first version of BEAT.

BEAT 2.0 - conditions

The new BEAT comes with a number of small but important conditions. The breach of any of these conditions will automatically convert the grant payments into an interest-bearing loan that the business will have to pay back to Government on the terms which I detail below. Any non compliance of these measures will result in the grant being converted into a loan.

Firstly, businesses will only be able to use the grant monies solely and exclusively for meeting the necessary costs and expenses incurred in the ordinary course of business. This support should be used to make the business leaner to withstand a post-COVID-19 business environment. We will not allow a business that is in receipt of the new BEAT to declare or charge a bonus or a dividend for a period of at least six months from the 1st July 2020. We do not anticipate that businesses will use the new BEAT irresponsibly but we will not tolerate any abuse whatsoever.

Secondly, Firms in receipt of BEAT payments will be able to terminate employment contracts with effect from the 1st July 2020. However, any business that terminates more than 30% of its workforce at any time during the next 6 months (from 1/7/20) will automatically have their new BEAT grant converted into a loan on the terms described below and will forfeit further unpaid BEAT amounts. Although we have relaxed the ability of BEAT receiving firms to terminate employment contracts, we will limit these to 30% of the total number of employees for Q3 for those firms that wish to continue to avail themselves of the BEAT grant.

 As a consequence of this measure, any business who is in receipt of the new BEAT will also need to give 7 days prior notice in writing to the Director of Employment of the terminations that they are seeking to make. Government will also retain the ability and discretion to adjust pro rata subsequent new BEAT payments having regard to the number of terminations that a business in receipt of the new BEAT grant makes. This may apply even if these terminations are within the 30% threshold.

Lastly, any business that is in receipt of the new BEAT grant and is found to have unregistered labour will also face the conversion of their grant to a loan. Any further grant payments will also be suspended.

We invite all businesses to ensure that all their employees are properly and fully registered in Gibraltar. To this end, I am pleased to announce a one month amnesty for the month of July to enable all firms to ensure their employees are properly registered.

With effect from the 1st August 2020, we will vigorously police registered employment and clamp down on unregistered labour. We will also increase the fines available for non compliance. 

Any new BEAT grant that is converted into a loan, for the reasons I have already described will be administered by the Central Arrears Unit as a debt to Government. These  Loans will bear interest at the rate of 6% and will be repaid over a 5 year period, repayable in equal monthly instalments to cover capital and interest on a reducing balance basis.

In insolvency, any new BEAT grant will be a preferential debt due to Government for the purposes of the Insolvency Act.

PAYE and social insurance

All sectors will be subject to the usual PAYE and social insurance obligations with effect from 1 July 2020.

Any PAYE and social insurance that was deferred during the 2nd quarter of 2020 will need to be repaid before 31 March 2021. Firms will therefore be able to gradually repay the deferred taxes over this period. Arrangements for these repayments will need to be coordinated by the Central Arrears Unit in close collaboration with the Income Tax Office.

Tax Office reimbursements and penalties for late filing

Over this third quarter and in-line with global tax administration responses to the COVID-19 pandemic as published by the OECD, the Income Tax Office will be expediting refunds due to both personal and corporate taxpayers.

The Commissioner of Income Tax has confirmed that the waiver of penalties in relation to the late filing of corporate tax returns with the Income Tax Office, that was first introduced in March of this year, is expected to continue until 31 August 2020. The waiver applies to filing deadlines with the ITO on or after 15 March 2020.

The decision to remove the current waiver will depend on how the COVID-19 pandemic evolves, but given the current process of the lifting of the restrictions, the ITO is expecting the waiver to be in place until 31 August 2020. This will be confirmed in due course and due notice will be provided by the ITO should the waiver be extended beyond that date.

It should be noted that, whilst a waiver exists in relation to the raising of penalties for the late filing of corporate tax returns, the existing surcharge regime has not been amended, and so companies and their advisers will need to ensure that income tax payments are made in line with existing due dates to avoid any surcharges.

Hotel, Airline & Transport Sectors

We will continue to work with our hotel, airline and transport sectors to support and stimulate tourism activity at this very difficult time. We recognise that these highly valued sectors have been especially affected by the pandemic.

COVID-19 Safety Officer

Every business will need to appoint a COVID-19 Officer as outlined in our Unlock the Rock document. This officer will be tasked with communicating safety information, promoting compliance with safety protocols and procedures and also ensuring continuous coverage for responding to safety concerns raised by other employees or indeed the business’ customers.

Mr Speaker, we believe these measures will help businesses in this first quarter AFTER the worst effects of the pandemic to date.

We believe these measures represent the right balance between assistance and intervention.

We believe these are the measures our economy needs.

I look forward to discussing these matters further with honourable members in coming days.

I commend this statement to House.