Summer Statement – “Do what is right”08 July 2020
Wednesday 08 July 2020 saw the delivery of the Chancellor Rishi Sunak's Summer Statement, during which a new package of measures of up to £30bn was announced to help individuals and businesses through the continuing challenges presented by the coronavirus.
The Chancellor described the three-phase nature of the challenge the UK is facing. In the first phase from March 2020, he noted that over 11 million people and jobs, and over 1 million businesses, have been supported through job retention schemes, tax deferrals, grants and loans. As we enter the second phase, with a cautious re-opening of the economy, we face profound economic challenges. The IMF is predicting a deep global recession, household consumption has fallen steeply and significant job losses are predicted. However, the Chancellor stressed that unemployment is not an unavoidable outcome and that the package of measures announced today is a first step towards the third phase – rebuilding.
The jobs retention scheme (furlough scheme) has been central to the government's economic response, and furlough has been a vital lifeline to many businesses and individuals. However, the Chancellor confirmed that the scheme cannot – and should not – continue indefinitely, as it would be in nobody's best interests to allow jobs to continue to exist purely because of government subsidies. The furlough scheme will end in October 2020, as previously announced.
It will not be possible to protect every job; however, the government aims to bring as many people as possible who are currently on furlough back to employment. The Chancellor has announced a new policy to reward employers who bring people back from furlough – a jobs retention bonus of £1,000 payable to the company on meeting certain conditions (paid in January 2021).
This headline announcement is part of the Chancellor's three-point plan to support, create and protect jobs in the UK.
Over 700,000 individuals will leave education in 2020, and those aged under 25 are 2.5 times more likely to work in a sector that has been subject to closure owing to the pandemic. The Chancellor has announced the Kickstart Scheme, a new programme to support young people into work. The scheme will pay employers directly to create new jobs for 16-24 year olds at risk of long-term unemployment. The funding will be conditional on a firm proving that the jobs created are new, and conditions will apply regarding minimum hours and pay. Provided the relevant conditions are met, the government will pay a young person's wage for six months. Employers will be able to apply for this funding from next month, and there is no cap on the number of places available.
There will also be funding for employers to take on new trainees and apprentices.
For those who are currently unemployed, a further £1bn of support has been announced to help the millions who are moving on to Universal Credit to get back to work.
Creating jobs / stamp duty cut
The headline announcement in the job creation plan was a temporary change to stamp duty. The Chancellor emphasised the importance of the housing sector for job creation, with three quarters of a million jobs in housebuilding alone. With property transactions having fallen by 50% in May, and house prices falling, there is significant uncertainty in the property market, and the Chancellor is keen to encourage individuals to buy and sell. To this end, he has announced a cut to stamp duty with immediate effect. Under normal rules, there is no stamp duty on transactions below £125,000. As of 08 July, this will increase to a threshold of £500,000. This is a temporary change until 31 March 2021, and will mean that the average stamp duty bill will fall by £4,500, with nearly 9 out of 10 people buying a main home this year being taken out of the stamp duty bracket altogether.
The Chancellor also announced significant further investment into infrastructure, with an emphasis on the creation of 'green' jobs. He aims to create local jobs through a new £2bn green homes grant for homeowners and landlords (up to £5,000) to make their homes more energy efficient.
Protecting jobs / VAT cut
The focus here was on protecting jobs in the hardest hit sectors of hospitality and tourism. The UK economy relies on social consumption in pubs, restaurants, hotels and attractions and over 2 million people are employed in these sectors. 1.4 million are currently furloughed.
The Chancellor announced a cut to VAT on food, accommodation and attractions from 20% to 5% from Wednesday 15 July 2020 to 12 January 2021. He noted that this should provide a catalyst of some £4bn to protect jobs in the hospitality and tourism sectors.
His final announcement focused on encouraging consumers to 'eat out to help out', in a measure to protect the 1.8 million people who work in restaurants and pubs. For the month of August, everyone in the country will be given an 'eat out to help out' discount, meaning that meals eaten at any participating business from Monday to Wednesday would be discounted by 50%, up to a maximum discount of £10 per head including children. Businesses will need to register to take part in the scheme through a website which will open on Monday 13 July.
We hope this update is helpful in looking at today's Summer Statement. If you need help with your own financial planning, then please contact the team at Chapters Financial Limited and please note that no individual advice has been provided during the course of this blog.
Keith Churchouse FPFS
CFP Chartered FCSI
Chartered Financial Planner
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