July 29, 2020
Rishi Sunak’s Summer Statement in July was the latest in a succession of interventions by a Chancellor who, in the three months to June, has borrowed more money than any of his peacetime predecessors.
The UK Government borrowed a record £127.9 billion in the second quarter of this year, more than double the £55.4 billion figure for the whole of 2019.
The Office for Budget Responsibility’s (OBR) expectation is that borrowing could reach £300 billion by the end of the financial year.
It speaks to the inexplicable depths of the coronavirus crisis that this still might not be enough to prevent mass unemployment in the months ahead.
Speaking to the House of Commons on July 8, Mr Sunak’s Plan for Jobs was a £30 billion stimulus package aimed at guiding the UK economy through the next stage of the crisis.
One of the most eye-catching policies was the Job Retention Bonus – a one-off payment of £1000 to UK employers for every furloughed employee who is brought back to work and kept on through to the end of January 2021.
It is hoped this measure will incentivise companies to take back as many furloughed employees as possible before October when the job retention scheme ends.
An independent think tank has its doubts about how persuasive the bonus will be.
Clare McNeil, associate director at the Institute of Public Policy Research (IPPR), reflects: “The £9.4 billion Job Retention Bonus is a halfway house reform – not a proper wage subsidy and not enough to persuade an employer keep someone in work for six months if they are in financial distress.”
To tackle rising unemployment among young people, the Chancellor directed a number of new policies at 16 to 24-year-olds.
A £2 billion fund called the Kickstart Scheme will create hundreds of thousands of six-month work placements for youngsters who are on Universal Credit. The Government will cover 25 hours per week at 100 per cent of the National Minimum Wage (NMW) for each placement.
£1.6 billion will also be channelled into skills training, apprenticeships, employment support and job finding services, with £895 million dedicated to doubling the number of work coaches in Jobcentre Plus by the end of the financial year.
This focus was welcomed by KPMG Newcastle’s office senior partner, David Elliot, who says: “Equipping our young workforce and low-skilled workers with new skills could help address some of the more systemic societal issues the North East faces, helping us to become more inclusive.
“The challenge will be in making sure all our communities feel they have an opportunity to play their part in the new digital age.”
Given the heavy sectoral impact of the coronavirus crisis, it was no surprise to see a number of targeted schemes to support the hospitality sector laid out in the Summer Statement.
Running for the whole month of August, the Eat Out to Help Out scheme will support around 130,000 restaurants, cafes and pubs by encouraging more people to dine out with a 50 per cent discount on food of up to £10 per head.
Mr Sunak also announced tax cuts for the sector in a form of VAT reductions. Until January 12 2021, food and non-alcoholic drinks, accommodation rates and tickets to attractions will be taxed at just 5 per cent.
This was well received by North East tourism body, the NewcastleGateshead Initiative (NGI).
Chief executive Sarah Green says: “It’s great news that the Chancellor has listened to our calls for support and today announced a temporary VAT cut for the tourism and hospitality sector and a new eating out voucher scheme.
“This will provide a much-needed boost for the North East’s £5 billion tourism industry and help support the 66,000 people it employs.”
One of the more controversial proposals set out in the Summer Statement was plans to increase the stamp duty threshold from £125,000 to £500,000 until March 2021.
This was criticised by IPPR’s executive director, Carys Roberts, who thinks the expensive change could undermine efforts to support people elsewhere.
She says: “A £3.8 billion stamp duty holiday is good news for estate agents and homeowners looking to move but will push up prices and amounts to more than all of the support announced for young people today.”
On the other hand, Darlington Building Society’s chief executive, Andrew Craddock, says the policy was “an important stimulus to the housing market.”
A £2 billion Green Homes Grant to incentivise homeowners to decarbonise their homes and £1.1 billion to do the same with public buildings was also announced.
In total, there were lots of new measures to pick over in the Summer Statement, some of which will undoubtedly alleviate elements of the economic distress facing communities across the UK.
But the economic distress will be significant, and even borrowing £300 billion this financial year, the Government could still be facing up to the return of mass unemployment.
Local authorities will be at the sharp end of dealing with joblessness when it comes and a devolved, regional approach from the Chancellor is one thing that the experts thought was missing from his speech.
Jonathan Walker, assistant director of policy at the North East England Chamber of Commerce, comments: “We had called for an economic intervention that recognised the potential for this crisis to entrench regional disparities.
“We continue to be dismayed at the lack of detail when it comes to long-term action to ‘level up’ regions such as ours.”
Sarah Longlands, IPPR North director, adds: “COVID-19 has shown us the real value of devolved and local authorities working hard to support their communities.
“The Chancellor must now commit to working in partnership with them to deliver the economic recovery.
“Getting our economy back up and running cannot be achieved from Whitehall alone.”