Economic Summer Statement Review

The first official fiscal statement since the March budget has been delivered today by the Chancellor, Rishi Sunak, which centred around a 3 point plan to support, create and protect jobs.

Sunak was speaking at a time of a deepening global recession, predicted to be the worst on record. The UK itself has experienced a 25% contraction in the economy since the lockdown started in March.

The Tories have a plan to get us all back to work and be social again, to eat out at restaurants, go on stay-cations and visit the cinema, but there was little mention of the dismal failure of the track and trace system in England, and no consideration or acknowledgement of people’s concern over their safety as the virus continues to circulate.

It was a statement of soaring rhetoric, as is Mr Sunak’s style, presidential, bold and always emotive. It did deliver a punch to incentivise particular sectors hardest hit by the pandemic, namely hospitality and tourism.

There was, however, little help announced for SMEs in other sectors. The self employed and directors, whose main income comes from dividends, will have to wait till the Autumn for any real tangible help, if any, but also with the spectre of tax rises looming. Much criticism from the opposition that Sunak did not deliver a grand plan to boost the economy and map out the bounce back, rather the support announced was focused on the same groups of people and sectors that have already had funding support.

Nonetheless, Rishi Sunak spoke of fostering hope beyond the pandemic across the country, in all four corners, and to get all people back to work. He spoke of endurance, and how his plan is to turn our national recovery to one of personal renewal founded in the 3 point job plan focused on a green job recovery, a VAT and stamp duty tax cut, and an ‘Eat out to Help Out’ scheme during August.

The main changes announced today

jobs, jobs, jobs

Sunak announced that there would be no extension of the Coronavirus Job Retention Scheme or the furlough scheme, and it will close in October as previously announced.

Sunak cited extending the furlough scheme would give workers false hope, whose skills would fade over time and it becoming increasingly difficult to find new job opportunities.

Instead, the Chancellor announced the new ‘Job Retention Bonus’ Scheme, introduced to help firms keep furloughed workers in employment. Employers will receive a one-off bonus of £1,000 for each furloughed employee who remain in their employment as at 31 January 2021.

There was also an acknowledgement by the Chancellor that the youngest workers in the UK will be hardest hit by the fall out of the health crisis. Sunak announced the ‘Kickstart Scheme’, more funding towards apprenticeships and traineeships and investment in careers advice for young people.

The Kickstart Scheme will directly pay employers to create new jobs for any 16 to 24-year-old at risk of long-term unemployment.

Employers will be eligible for new job creation only, with a minimum of 25 hours per week paid at least the National Minimum Wage. Employers must also commit to train and support these young people in their new jobs, and if employers meet these conditions, the Treasury will pay the wages for six months, plus overheads. The scheme is available to businesses of all sizes.

Employers can apply to be part of the scheme from next month, with the first ‘kickstarters’ likely start in their new jobs by the autumn. The Kickstart Scheme is expected to last till at least the end of 2021.

Sunak also announced funding to employers who take on new trainees, paying out £1,000 per trainee and a £100 million fund to create more Level 2 and 3 courses for high-demand sectors like engineering, construction and social care.

Additional stimulus to employers has also been announced who take on apprentices. 91% of apprentices stay in work or do further training afterwards. The Treasury will pay businesses to hire young apprentices with a £2,000 payment per apprentice for the next 6 months. There is also a brand new bonus for businesses to hire apprentices aged 25 and over, with a payment of £1,500.

A green recovery

The second phase of the Treasury’s 3 point job plan is job creation, with the focus on cutting carbon and creating new jobs in the process.

Sunak announced a £2 billion Green Homes Grant. From September, homeowners and landlords will be able to apply for vouchers to make their homes more energy efficient in the hope of creating local jobs.

The grants will cover at least two thirds of the cost, up to £5,000 per household. And for low income households, vouchers will cover the full cost and be valued up to £10,000.

The expectation from government via this voucher scheme is to cut household bills up to £300 per year and to cut carbon by more than half a mega tonne per year, equivalent to taking 270,000 cars off the road and to create and support around 140,000 green jobs.

Time will tell how successful this route to carbon neutral will be, but does fall short at best, according to the opposition.

VAT Cut to the hospitality and tourism sectors

To help protect jobs that already exist in the hospitality and tourism sectors, which make up the lions share of 1.4 million furloughed workers, the Chancellor announced a VAT cut from 20% to 5%, starting from next Wednesday 15th July to 12th January 2021.

Interesting to hear the Chancellor acknowledge that the jobs protected as a result of this tax cut will benefit women, black, asian and minorites, as well as rurual and costal regions the most.

The Chancellor wants to see our high streets and restaurants back up and running again, and with immediate effect.

‘Eat Out to Help Out’ Scheme

And if the VAT cut announcement wasn’t enough to help these failing sectors survive and retain workers on payroll, Sunak announced a temporary ‘Eat Out to Help Out’ scheme in the month of August to entice us all to be sociable once again and feast out on a 50% reduction on our food bills.

Businesses can register for the scheme from next Monday, 13th July, and can claim back the revenue weekly from the Treasury, with a 5 day payment reimbursement.

Stamp Duty Cut for the next 6 months

And last but not least, Rishi Sunak announced a temporary cut to stamp duty in England and Northern Ireland. Scotland and Wales would need to update their respective legislation to follow suit.

Currently the threshold of no stamp duty payment is for house purchases below £125,000.

With immediate effect, this threshold has been increased to £500,000, which will run until 31 March 2021.

A final measure to kick start the housing economy where we have seen house prices fall for the first time in 8 years.

Summary

The Chancellor’s hotly anticipated economic summer statement today was firmly focused on the immediate stimulus of the economy with tax cuts and more funding announced, leaving likely tax rises to be pushed to later in the year.

There is no doubt that the government and the treasury are keen to incentivise the British people to enjoy the summer ahead and spend, spend spend. Spending our way out of a recession is highly unlikely considering the magnitude of COVID-19 funding already deployed and the impact of the Great Pause over the last four months.

These next few months might be the best time to emerge and make up for lost time, but Sunak’s wish to rebuild the public’s confidence to work and live as we did before lockdown may be unrealistic considering the virus is very much still amongst our midst.