9 Jul 2020

Sunak’s little bazooka

Chancellor Rishi Sunak made his July mini-budget seem bigger than it was.

Chancellor Rishi Sunak made his July mini-budget seem bigger than it was. But the real new spending he announced was not worth £30 billion but about £20 billion, and this is based on optimistic estimates of job recovery. If that sounds a lot, bear in mind that the government has actually spent £160 billion so far on anti-COVID measures and allocated a further £122 billion to loans and guarantees. And consider that the government has allocated an astounding £15 billion to purchases of protective equipment – more than annual spending on policing in England and Wales - and £10 billion to its test-and-trace scheme.

In fact, this summer package is no more than a holding operation while the Treasury tries to understand the state of the economy as the UK slowly emerges from lockdown, and a much bigger package is almost certainly going to be needed in the normal Autumn Budget. For now, Mr Sunak has targeted the hard-hit hospitality sector.

The main measures with short-term impact are the cut in VAT from 20% to 5% on accommodation and meals, which lasts until next January, and the ‘Eat Out to Help Out’ scheme that gives a maximum discount of £10 per head on meals bought between Monday and Wednesday in August. The VAT cut is a £4 billion giveaway. The eat-out scheme may cost the government £500 million, but we can all make a difference. Since there’s no limit on the number of times you can claim it, some people could make a serious effort to help struggling pubs and restaurants. You could claim the discount on a maximum of 39 meals (three a day if you can manage that) with a total government bung of £1,560 for a family of four during the month. (This is not a recommendation).

The immediate increase in the Stamp Duty threshold from £125,000 to £500,000 until March 2021 will save housebuyers up to £15,000, and applies to all purchases, not just the first. If it does, as expected, boost the number of transactions it should also increase knock-on spending on furniture and home improvement. Watch the market for price effects: it makes no sense to price a house at just over £500,000.

Owners of older homes should certainly consider the new Green Homes Grant, which will provide government funds of up to £2 for every £1 spent by the homeowner up to a maximum of £7,500 on energy-efficiency improvements.

The bungs for employers may be just enough to persuade them not to issue redundancy notices. They get £1,000 for every employee who is brought back from furlough and paid over £520 per month in November, December and January. That will not stop unemployment rising – many jobs have gone for ever – but could slow it down. It looks as if unemployment could still be over 8% by the year-end.

Employer subsidies for new traineeships (£1,000 each) and apprenticeships (£2,500 each) will be welcomed by employers, but the fact that the Department of Work & Pensions will spend an extra £1 billion employing more staff in job support and careers advice will probably have a much bigger effect on the number of people employed.

The hospitality industry employs some 2 million people in the UK, of whom 1.4 million have been furloughed. The key question is how many of them will be re-employed and how many made redundant. By the Autumn, we’ll have a pretty good idea.

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