The actions taken by the government since the start of the coronavirus crisis including the bounce back loans, subsidies and grants that have been distributed have undoubtedly made a huge impact and saved many businesses going to the wall. However, despite the past four months seeing the biggest state intervention in the private sector since the Second World War, there is a still long way to go and with the furlough scheme set to be wound down by October, major job losses in certain sectors will gather pace – no matter what new measures are introduced.
The big announcements of the day; the Jobs Retention Bonus for Employers, a temporary cut in residential stamp duty until 31st March 2021, and a six-month cut in VAT to 5% on tourism and hospitality related activities are all bold and decisive moves.
The stamp duty holiday is a real opportunity to reboot the housing market after three months of lockdown and a 50% drop in sales, whilst the VAT reduction will directly help companies in the sectors hardest hit by the crisis, most notably hospitality, leisure and retail. There was some speculation the VAT cut would be across the board, but I was sceptical about that as it would have been too expensive, costing the exchequer around £21bn in lost income.
The “eat out to help out discount” is an interesting and unprecedented measure, however, it will be interesting to see how much difference it makes.
The already announced £2bn job creation ‘kick start’ scheme for the under 25s is welcome news. It will see the government fund six-month job placements for hundreds of thousands of 18 to 24-year-olds, who are considered at most risk of suffering from long-term unemployment. The package will include the government covering 100% of the national minimum wage for each young employee, for 25 hours a week. Employers will also be able to provide wage top-ups. The new £111m funding for new traineeships will be another boast as will the £1,000 bonuses for business which give young people work experience placements. The £2,000 bonus for creating new apprenticeships is also most welcome. The key to the success of these measures, of course, will be whether they lead to full time jobs.
Other initiatives, including vouchers of up to £5,000 for energy-saving home improvements as part of a wider £3b plan to cut total emissions, the £1.6bn package of grants and loans for the arts and heritage sector, and the doubling of front line staff at job centres, as well as an extra £32m for recruiting extra careers advisers and £17m for work academies in England, will make a difference but we will have to wait and see by how much.
“The real test will be the Autumn Budget and Spending Review”
The Summer Statement was needed, but it was more about minimising the pain over the coming months rather than setting out a long-term and sustainable fiscal strategy. In reality, it was just a sticking plaster and the real test will be the Autumn Budget and Spending Review by which time the current deficit of around £300bn is set to have grown even more. This is when the Chancellor’s popularity, and his options, might come under real pressure, as stimulus spending will have to potentially start to fall if the economy doesn’t start picking up.