Chancellor Sunak announced more fiscal support this afternoon. The Treasury have the policies costed at up to £30bn – i.e. ~ 1.5%GDP – although this includes the £5bn in brought-forward infrastructure spending.
There were several big headline announcements, going beyond those leaked in the press earlier in the week (see below). Overall, another welcome package at a time when the economy is at a critical juncture.
This was not a full budget statement though. There was no indication that these measures will be paid for with anything other than more borrowing and debt for now. They are mostly clearly time limited measures – so they should raise borrowing only temporarily (although popular measures can be politically difficult to reverse). We’ll have to wait until the Autumn for the Budget and a better understanding about whether there will be public sector spending cuts and/or tax rises to help set debt on a lower path.
There was an element of targeting in the announcements – for construction, hospitality/leisure. However, the Chancellor confirmed that the cornerstone element of generalised fiscal support so far – the furlough scheme – will be unwound by October. That is particularly important given that there are sectors still not able to reopen – e.g. indoor gyms, theatres.
Measures to encourage re-hiring (rather than redundancy as the furlough scheme unwinds), included a job retention bonus where every furloughed employee continuously employed through to the end of January will result in a £1000 bonus paid to the employer (though subject to that employee earning >£520 a month).
As for job creation, the kickstart scheme was also confirmed (where the government will, for 6 months, cover the minimum wage payment for work placements for 16-24 year olds as well as other overheads). The Chancellor also announced more funding for apprenticeships, job search and skills initiatives. All that was in addition to the well trailed Green Homes Grant and previously announced bringing forward of infrastructure spending that the government hopes will also bolster jobs (as well as decarbonisation efforts).
The floated temporary stamp duty cut also emerged – so no home sales below £500K will attract stamp duty through to 31st March next year. Part of the aim seems to be to keep momentum going in the market, helping to shore up consumer confidence. This may, of course, end up boosting house prices, and isn’t targeted to help incentivise home building for example.
The chancellor also announced two targeted measures for the leisure and hospitality sector: 1) VAT is to be cut from 20% to 5% for that sector; 2) “Eat Out to Help Out”, where the government will pay the cost of 50% off meals out to a maximum discount of £10 a head for everyone. These measures may help get some people back into eating out again and visiting attractions again, but will likely be most effective if accompanied by a continued fall in COVID-19 numbers given fear, rather than cost, will likely be what keeps many away.
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