Summer Economic Update
Against the backdrop of the Coronavirus crisis and subsequent impact on the economy, the Chancellor of the Exchequer Rishi Sunak today delivered what was officially billed as the “Summer Economic Update”, but which in many ways resembled a mini-budget. It was a statement that he would not have expected to have to make when he took office less than five months ago.
Anticipating a large increase in unemployment, already forecast by the Bank of England and the OBR, the focus of the Chancellor’s statement today was firmly on what he described as a “Plan for Jobs”, based on a “desire to do what is right”.
Starting with the furlough scheme, the Chancellor argued that the longer people were off work the higher the risk of them becoming unskilled or unused to work. Mr Sunak confirmed that the furlough scheme would be scaled back “flexibly and gradually”.
But he also announced a new policy to encourage businesses to bring furloughed employees back into employment. Employers can claim a £1000 bonus for each employee brought back from furlough and still in employment next January, provided they are paid at least £520 per month from the start of November. While the Treasury has earmarked up to £9 billion for this policy, the largest element of today’s set of announcements, few commentators expect anything like a full take-up.
The Chancellor responded to concern about the impact of the Coronavirus crisis on younger people by announcing a set of policies to support 16-24 year olds at risk of unemployment and incentivise companies to employ them as trainees and apprenticeships.
He announced a “Kickstart Scheme” to pay the wages for a six-month period for any 16 to 24-year-old on universal credit at risk of long-term unemployment. The condition is that the jobs must be new ones, with recipients working a minimum of 25 hours per week paid at least the National Minimum Wage. Commentators have remarked that there are more than a few echoes here of Gordon Brown’s Future Jobs Fund launched after the financial crisis, and swiftly jettisoned by David Cameron following the 2010 election.
A number of elements announced today had already been briefed over recent days. The Chancellor confirmed details of the already trailed Green Homes Grant under which households will be eligible for two-thirds of the cost of energy efficiency measures up to £5,000, with lower income households able to apply for the full cost up to £10,000. Mr Sunak said he hoped the measures would support the decarbonisation of 650,000 homes and support 140,000 green jobs.
Reports at the start of the week that a stamp duty cut may be announced today, but not take effect until the autumn budget, led to criticism from a number of economists who said that such a move would temporarily freeze the housing market. Mr Sunak confirmed that cut but said that it would take effect immediately, with the threshold to be increased to £500,000 until 31 March 2021.
The Chancellor announced specific support for the hospitality and tourism sectors. He outlined the scale of the challenges faced by many of these businesses and their importance not only to the economy but also their wider role in bringing people together. In order to encourage footfall, Mr Sunak announced a cut in VAT from 20% to 5% for food, accommodation and attractions from next Wednesday until January 2021.
His final announcement, although costing relatively little to the public purse, was perhaps the most unprecedented. Mr Sunak announced a new government funded “eat out to help out” discount of 50% up to £10 per customer, at participating restaurants during the month of August on Mondays to Wednesdays. It is a sign of how much has changed and how badly the sector has been hit that a Conservative Chancellor would even consider such a measure – and whether it will make a difference remains to be seen.
Today’s support for the hospitality sector will be broadly welcomed as were the provision of funds to support the arts and culture announced over the weekend. But many in other sectors will be disappointed that they have not so far been included and are likely to want to make their voices heard in the coming weeks.
However, as we approach the autumn budget and spending round, the challenge for the Chancellor and his Treasury colleagues will be the reality of trying to keep government borrowing under control and have a plan to get finances back on track in a way that is consistent with the Prime Minister’s recent re-affirmation of Tory manifesto pledges on tax and “no return to austerity”. Something, inevitably, will have to give.
The Chancellor pledged today that “People need to know that although hardship lies ahead, no one will be left without hope.” Whatever lies ahead, meeting that commitment and paying for it, will inevitably dominate the rest of this parliament.