Summer Economic Update
When the Chancellor, Rishi Sunak, delivered his Spring Budget on 11 March to the packed benches of the House of Commons, the hope was that the economic impact of the Coronavirus outbreak would be ‘V-shaped’, with an immediate bounce back to prosperity.
Since then, nearly four months of onerous restrictions have shuttered large sections of the economy, GDP has fallen by an unprecedented 25 per cent and 9.4 million people have been furloughed from their jobs, leaving the shape of the recovery highly uncertain.
With lockdown measures now having eased substantially, businesses reopening and early signs of growth returning, but some of the Government’s key interventions soon coming to an end, the Chancellor rose to the dispatch box in a half-empty, socially distanced House of Commons.
The speech was billed as a ‘Summer Economic Update’, rather than an ‘Emergency Budget’, leading to speculation as to whether the Chancellor would announce much of significance or adopt a wait-and-see approach, leaving bold announcements for the Autumn Budget.
It turned out, as things tend to, that what came to pass was somewhere in the middle with the speech being used to unveil the Government’s Plan for Jobs, described by the Chancellor as the second phase in the Government’s economic response to the crisis.
- Coronavirus Job Retention Scheme and Job Retention Bonus
- Kickstart Scheme and measures to help people find work
- Stamp Duty Land Tax Holiday and job creation measures
- VAT cut for Hospitality and Tourism sectors
- Eat Out to Help Out
The first major announcement from the Chancellor was the confirmation that the Coronavirus Job Retention Scheme (CJRS) will close, as planned, at the end of October, arguing that “leaving the furlough scheme open forever gives people false hope that it will always be possible to return to the jobs they had before”.
The scheme currently offers employers grants worth 80 per cent of a furloughed employee’s usual salary up to a cap of £2,500 a month plus the associated Employer National Insurance Contributions (NICs) and minimum automatic enrolment pension contributions. Furloughed employees will be paid 80 per cent of their usual pay up to a cap of £2,500 a month until the end of the scheme in October and, since the beginning of July have been able to return to work part-time, with employers claiming a grant only in respect of usual hours not worked.
The Chancellor’s announcement confirms that grants from the scheme will cease to cover Employer National Insurance Contributions (NICs) and minimum automatic enrolment pension contributions from August. In September, the value of grants will fall to 70 per cent of usual wages up to £2,187.50 a month with employers making up 10 per cent. Finally, in October, the grant will fall to 60 per cent of usual wages up to £1,875 a month, with employers expected to make up 20 per cent.
However, the Chancellor looked to cushion the blow with the announcement of a Job Retention Bonus. The new scheme will see the taxpayer give employers £1,000 for each previously furloughed employee they retain and keep in employment until January, as long as they are paid at least £520 a month. Further details of the scheme are expected later in July.
Moving to his plans to support people in finding jobs, the Chancellor announced the Kickstart Scheme, which will provide £2 billion to support the creation of “high quality” six-month work placements for 16 to 24 year-olds on Universal Credit and at risk of long-term unemployment.
The taxpayer will provide employers that offer the placements funding equivalent to 100 per cent of the relevant level of the National Minimum Wage (NMW) for 25 hours a week. It will also cover the associated Employer NICs and minimum automatic enrolment pension contributions.
Outlining further plans to support people in finding jobs, the Chancellor confirmed 10 additional measures, including funding for traineeships and employers that hire new apprentices, as well as funding for several careers and job-finding programmes.
The apprenticeships funding will provide £2,000 to employers in England for every apprentice hired under the age of 25 and £1,500 for each newly hired apprentice aged 25 or older. This funding is in addition to schemes already in place to support employers in taking on apprentices.
Housing, construction and infrastructure were at the core of the measures announced by the Chancellor to catalyse job creation, with a temporary cut to Stamp Duty Land Tax (SDLT) by raising the nil-rate band from £125,000 to £500,000 from now until 31 March 2021. The Treasury estimates that, as a consequence, around nine in 10 people buying a main residence will pay no SDLT.
Staying with the focus on housing, the Chancellor announced a £2 billion Green Homes Grant for homeowners and landlords, covering two-thirds of the cost, up to a cap of £5,000 per household, towards making homes more energy-efficient, with more for low-income households.
These measures came in addition to £5 billion of infrastructure spending announced a week earlier by the Prime Minister and came on top of various other measures targetted at the housing and construction sectors.
Before the speech, there was considerable speculation about whether there would be a VAT cut, as had been called for by at least two former Chancellors, and, if so, whether this would see the rate cut in general or targeted at specific sectors.
In the event, Chancellor opted against a general cut to the rate of VAT, opting instead to cut the rate for the Hospitality and Tourism sectors from 20 per cent to five per cent. The measures relate specifically to food and non-alcoholic drinks and to accommodation and admission to attractions, with further details expected to be published later.
The change comes into effect on Wednesday 15 July 2020 and will be in place temporarily until 12 January 2021.
Perhaps the most eye-catching of the measures announced by the Chancellor was the Eat Out to Help Out scheme, which will provide a discount of 50 per cent of up to £10 a person on eat-in meals, including non-alcoholic drinks, at participating establishments on Mondays, Tuesdays and Wednesdays in August.
A website for restaurants, cafes and pubs to use to sign-up for the scheme is expected to launch on Monday 13 July 2020.
The measures outlined by the Chancellor continue to put support for jobs firmly at the centre of the Government’s approach to rebuilding the economy as we emerge from the Coronavirus outbreak.
However, with today’s measures expected to cost around a further £30 billion, it remains to be seen how they will be funded in the long-term, with the Chancellor having previously hinted at tax changes in future Budgets.