As the UK government prepares to navigate the economic fallout from COVID-19, the big story of the Summer Statement 2020 is the focus on 'jobs, jobs, jobs' and large temporary fiscal measures to support specific sectors, such as hospitality and tourism.
The chancellor announced that the UK economy had contracted by 25% in just two months, undoing 18 years’ worth of growth. Stark warnings from the International Monetary Fund (IMF) that this is set to be the largest recession on record mean the government is under no illusions that the recovery will be painful.
However, with the government unable to quantify the full extent of the economic impact, concern about the possibility of a second wave and uncertainty over the future timeline of ending lockdown, today’s announcement should be read as an initial reaction, not the full response; a stopgap.
For context, the measures announced today total around £30 billion compared to the £159 billion in existing coronavirus support. We can expect a full autumn budget and spending review, which will likely bring significant change and investment to the economy.
The measures announced today are good news for those businesses in hospitality and tourism, employers who can bring staff off furlough, homebuyers and those looking to gain an apprenticeship or get their first job. With that in mind, what were the key takeaways?
The chancellor confirmed that the Coronavirus Job Retention Scheme would be wound down by the end of October, this year.
Clearly the government is concerned over rising unemployment and, in response, announced several measures to support workers and skills development, including:
A new policy to reward and incentivise employers bringing back furloughed employees: £1,000 for every furloughed employee being brought back and kept through to January 2021.
The government will pay employers for creating jobs for 16-24 year-olds who are on Universal Credit, with funding conditional on firms proving they are newly created jobs. The government will pay young people’s wages for six months, plus an amount to cover overheads. That means, for a 24-year-old, the grant will be worth around £6,500.
For the six month period from 1 August 2020 to 31 January 2021, the government will pay employers in England to create apprenticeships, up to £2,000 per apprentice aged under 25 and £1,500 for those aged 25 and over. Additionally, for the first time ever, the government will fund employers in England who provide trainees aged 16-24 with work experience, at a rate of £1,000 per trainee.
"The incentives for businesses to revisit and build talent strategies are particularly important in an environment where business models have fundamentally been changed by lockdown, in addition to other economic and social change. As new and different business needs emerge, businesses have to consider the different types of skills they require, both now and in the future.
"The Job Retention Bonus is likely to play a key role in helping some businesses to preserve important roles that might otherwise have been lost to cost restrictions. It may also encourage some creative thinking around helping returning workers to acquire new skills and, ultimately, fulfill new roles.
"Increased support for apprenticeships over the next six months is a further promising opportunity for businesses to fill important skills gaps, helping to drive improved business agility and resilience; and also to develop vital digital skills that will help move them in to the future."
The hospitality and tourism sector has been hit hard by coronavirus, through a combination of lockdown measures and reduced consumer confidence. To try and stimulate activity in the sector, the chancellor announced two big temporary measures:
From 15 July 2020 to 12 January 2021, a 5% rate of VAT will apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK. A 5% rate of VAT will also apply to supplies of accommodation and admission to attractions across the UK.
For the month of August, every UK citizen will be given an 'eat out to help out' discount. Offering customers a discount worth up to £10 per head, each time they eat at a restaurant from Monday to Wednesday every week in August.
“Following in the footsteps of other European countries, like Austria and Germany, that have also recently reduced the rate of VAT for hospitality, the temporary change announced today is the first major reduction in the UK for over 10 years. However, with the reduced rate applying from next Wednesday, businesses are faced with the complexity of a VAT rate change in their systems mid-month and without much notice. Those businesses affected need to quickly consider the impact this will have on their pricing and price points, consider if there are any changes required to their accounting and electronic point-of-sale systems, as well as how the reduction will be reflected on receipts, invoices, menus and marketing.”
In a move to show the government's green credentials and support the real estate market, alongside measures to improve energy efficiency in public sector buildings and social housing, the chancellor announced:
From September, homeowners and landowners can apply for vouchers to help towards the cost of energy efficiency improvements, up to £5,000 per household. For low-income households, the vouchers will cover the full cost up to £10,000 per household.
The tax-free threshold has been increased to £500,000. Coming into force today, this will run until the 31st March 2021.
"The temporary cut to stamp duty land tax on residential home purchases up to £500,000 seems to be applicable to both homeowners and those buying second homes and investment properties, although the latter will still have to pay the 3% surcharge.
"The importance of the construction industry has also been recognised through accelerated infrastructure expenditure and the 'Green Homes' fund. Both of these should encourage the creation and retention of jobs."
Many businesses will look at today's announcements and see little for themselves. Key UK sectors like automotive, oil and gas, and aerospace did not get a mention. Others, such as gyms, pools and beauty salons, remain shut, with no certainty on when they might re-open or how they will recover.
Those that will benefit from today’s measures will also have questions over the implementation of new schemes and payments. We can expect details in the coming days, but what is clear is that this is just the beginning, and that government will need to intervene further.
Big questions over the full impact of coronavirus on the UK economy will come later, including whether these measures will help, what future support will they provide, and how all these, and future, interventions will be paid for. We can expect a mammoth budget and spending review.
If today was the appetiser, the autumn Budget looks set to be the main and dessert, all rolled into one.
