More stimulus please – put the bill in the post
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In his summer statement, the chancellor Rishi Sunak announced a series of measures designed to create and protect jobs and encourage confidence in a longer-term recovery from the coronavirus crisis. However, many of the harder questions around who will end up footing the bill will have to wait until his autumn budget.
This is the first time that Britons have heard from the chancellor in detail since his budget in March, before the start of lockdown, when there was a series of major announcements to support businesses in the face of coronavirus; most notably, the introduction of the furlough scheme.
While nobody was expecting the chancellor to detail such large-scale government interventions in this summer statement, he continued to focus on stimulating measures to support businesses, and most importantly to shore up jobs amid the winding down of the furlough scheme.
The focus, for now, is on preventing a spike in unemployment and reducing the impact of the pandemic on the next generation. The less economic scarring incurred now, the lower the ultimate bill.
However, any question of how that bill will be paid has been put off for now – decisions on tax rates and allowances which may be examined to help pay for the crisis could play a prominent part in the autumn budget later in the year.
Protecting the economy
Sunak announced measures to protect against mass unemployment, and boost sectors that have been particularly affected by lockdown.
While more than nine million employees have been furloughed, the scaling back of the scheme has prompted tens of thousands of redundancies over recent weeks. The size of the government subsidy will be reducing from August, with employers facing difficult decisions as they share the cost before the scheme ends on 31 October.
A jobs retention scheme will be part of winding down the furlough scheme, with businesses given £1,000 per head to retain furloughed staff. However, the chancellor pledged the majority of support to young people who are particularly impacted by the crisis, and have been the group most likely to be furloughed.
This includes the government paying the wages of young employees for six months as part of the new ‘kickstart’ job scheme for young people aged 16 to 24, with an initial £2bn to fund the creation of hundreds
of thousands of work placements, and no cap on the number of places.
Apprenticeships will also be supported, with companies receiving £2,000 for each apprentice, or £1,500 for those aged over 25. Employers will also receive £1,000 for every trainee offered a work experience placement, and there will be a doubling of staff at job centres.
Keeping the wheels moving
The impact of Covid-19 has dramatically reduced consumer spending, while travel has been suspended and shops, pubs and restaurants closed.
While the hospitality and retail sectors have begun opening, consumers may be fearing a deep economic downturn leading them to keep their money in their pockets. To encourage spending, Sunak announced vouchers to use when dining out in August as part of the new ‘Eat Out to Help Out’ scheme, offering a reduction on meal costs.
Perhaps more notably, the hospitality sector will benefit from a VAT cut for the next six months, which will see the current rate of 20% drop to 5% on food, accommodation and attractions.
The chancellor also announced cash handouts for consumers with vouchers of up to £5,000 for energy- saving home improvements as part of a wider £3bn green investment package.
To breathe life into the housing market, Sunak announced a rise in the stamp duty threshold from £125,000 to £500,000 until 31 March 2021 in England and Northern Ireland. The change is aimed at giving people an incentive to get onto or move up the property ladder, alongside stimulating confidence in wider economic activity to renovate, and improve our homes.
The chancellor said: “The average stamp duty bill will fall by £4,500. And nearly nine out of 10 people buying a main home this year, will pay no stamp duty at all.”
The summer statement provided fresh impetus and reinforced the commitment that government has already demonstrated in dealing with the economic impact of the coronavirus.
However, for many the question will still be how the unprecedented government support will ultimately be paid for in the aftermath of the crisis.
It’s not an immediate problem as borrowing costs for the government are negative for bonds (loans) of up to five years. However, the chancellor was clear that phase three of his Covid-19 response involves rebuilding, and that includes the rebuilding of the public finances.
It will be the autumn budget when we get a stronger sense of how the cost will be met, and there is a widespread view that those with the broadest shoulders will be asked to bear the greater load.
There has already been press speculation about wealth taxes, although prime minister Boris Johnson denied any intent to introduce one during prime minister’s questions shortly before the summer statement.
Reducing current tax allowances, such as higher rate pensions relief, has however been speculated upon previously, and there is little reason to think areas like these will not be revisited now.
In the meantime, many people will look to ensure they make use of their allowances while they remain available.