The Summer Economic Update: A Plan for Jobs

Taso Advisory
Jul Wed, 2020
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This afternoon (8th June 2020) the Chancellor of the Exchequer delivered his Summer Economic Update. This detailed the package of support and measures for the second phase of the UK’s economic recovery from the pandemic. 

The Update was delivered in the context of the International Monetary Fund predicting the worst global recession since records began and the UK suffering an economic contraction of 25%: the amount the economy grew in the past 18 years. The Chancellor was also keen to point out the scale of support that the Government had already provided, with 11 million people and jobs supported across more than one million businesses. 

A SUMMARY OF ANNOUNCEMENTS

The Chancellor dubbed this Update A Plan for Jobs, and it comes with enormous spending commitments of up to £30 billion and significant policy announcements, including:

  • The end of the furlough scheme - The Coronavirus Job Retention Scheme, in place since March, will wind down “flexibly and gradually” through to October. 
  • A jobs retention bonus - To make sure that those who were furloughed are supported back to work, the Government is funding a £1,000 bonus for businesses for every employee who was on furlough who returns to work and remains continuously employed through to the end of January 2021.
  • A Kickstart Scheme - This £2 billion fund will pay the wages and some of the overheads for hundreds of thousands of six-month work placements for 16-24 year olds currently on Universal Credit. 
  • Incentives to take on trainees and apprentices - A new £111 million fund for high-quality traineeships, paying £1,000 to businesses who take on a trainee alongside a £2,000 payment to employers who take on apprentices aged under 25 (reduced to £1,500 for apprentices aged over 25). 
  • A huge temporary stamp duty cut - Effective immediately through to the end of the financial year the nil rate band of stamp duty has been increased from £125,000 to £500,000.
  • Big spending on a green recovery - Over £3 billion committed to a Green Homes Grant and a fund to decarbonise public sector buildings and social housing.
  • VAT reductions for hospitality and tourism - An enormous cut of the VAT rate for food, non-alcoholic drinks, accommodation and attractions from 20% down to 5%. 
  • Eat Out to Help Out - a 50% off (up to £10) scheme for sit-in meals on Mondays, Tuesday and Wednesdays throughout the whole of August. 

KEY TAKEAWAYS (NOW WITH ONLY 5% VAT)

A POLITICAL LAND GRAB

This was another demonstration of this Government’s propensity to occupy territory traditionally held by the Labour Party. Not just because of the huge sums of money committed (the world is in crisis, the spend is unsurprising) but because of the rhetoric around it. The Chancellor’s message to business was “if you stand by your workers, we will stand by you”. 

The Shadow Chancellor, Anneliese Dodds, gave a solid response to a fiscal event that will be widely commended. But the opposition found relatively little to criticise in terms of the Chancellor’s work and so the response focussed on the errors of the public health response to the pandemic.  

The Government’s positioning is paying political dividends now, but there will be many in the Conservative Party uncomfortable with the implicit destination for the Party’s longer term economic policy. 

THE GREENS IN GOVERNMENT?

Not quite, but the Chancellor used today to demonstrate his green credentials. 

This Update announced billions of pounds for green programmes and carbon reduction, helping to cover the cost of lowering emissions from homes and buildings across the UK. This is in part another land grab on the Labour Party’s calls for a ‘Green Recovery’, but also part of a wider trend of green conservatism among members of the Cabinet, and indeed the Prime Minister’s fiancée. 

Sectors and businesses should make as much of their green credentials and activities as possible: this Government is willing to support it. 

BUMPER SUPPORT FOR SOME SECTORS, BUT OTHERS WILL STILL STRUGGLE

The absence of specific support for certain sectors, particularly compared to the huge support for the tourism and hospitality sectors, was the major blow that Anneliese Dodds managed to land. 

Whilst it was perhaps unfair to say that a £30 billion intervention was putting the big decisions off, many will feel that there are sectors which are viable in normal circumstances but who continue to struggle to secure the Government support they require. The sectors will need to continue to lobby the Treasury hard, building public support for their arguments. 

THE NEXT STEPS

The Chancellor confirmed that there will be a Budget and Spending Review in the Autumn, and that this will focus on the third phase of the recovery: rebuilding. 

It will be then that further tax and spending measures will be brought forward to boost the economy into the future. Businesses and sectors will need to make the case for support well in advance, with strong and compelling evidence and arguments

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