Summer economic update: no such thing as a free lunch?
Having listened to the Chancellor Rishi Sunak’s ‘Summer Economic Update’, I am reminded of the saying: ‘There’s no such thing as a free lunch’. Many governments have tried to dissuade us of this notion with high levels of spending, however, this is the first time we have seen The State offering universal meal subsidies – ‘Help to Pie’ rather than ‘Help to Buy’ if you will!
Indeed, a brand of Covid socialism is still well and truly alive in the UK, with Boris Johnson recently having to take the unthinkable step for a PM of saying he is ‘not a communist’. The magic money tree has provided, and it is now difficult to deny its existence.
Thankfully though this brand of socialism is tied to Covid-19 and we can see that the Chancellor recognises that ultimately it will be the private sector which has to lead the recovery. Reassuringly, many of the measures maintain competition and consumer choice at their heart.
There was also an important recognition that furlough cannot continue indefinitely but all the measures the Chancellor announced were designed to keep unemployment figures as low as possible.
The biggest spending commitment was for a Job Retention Bonus which will grant employers who bring back furloughed workers a grant of £1,000 for each employee. At the same time, a £2bn Kickstart Scheme will help young people on Universal Credit get back into employment, with up to 100% of their salaries covered for six-month placements.
There was also a £1.6bn package to support employment support schemes as well as training and apprenticeships. Businesses would receive £2,000 for each new apprentice they hire under 25 and there will be nearly £900 million to double the number of work coaches up to 27,000.
HELP TO PIE
Hospitality is unsurprisingly one of the worst hit industries by Covid-19 and many of the announcements focused on this sector. This has included a six-month VAT cut to 5% for food, accommodation and attractions; and the meal voucher scheme referenced above. Of course, the worry is that these measures provide temporary relief for the sector – it’s survival is predicated on businesses returning en masse from remote working in the near future and this isn’t guaranteed.
LIBERALISING THE PROPERTY MARKET
In response to the dramatic drop in property transactions in recent months, the Government has also introduced a Stamp Duty holiday for homes with a purchase price of up to £500,000 until 31 March 2021. There is also talk of making this change permanent given that the tax removes any incentive to move home, even when it would be financially beneficial – taking up an offer of employment or allowing older people to downsize.
CHOPPING DOWN THE MAGIC MONEY TREE
The Chancellor has pledged around £30bn in new spending commitments, which roughly mirrors what was proposed in the budget earlier this year. Combined with commitments on HS2 and other infrastructure spending, we are going to see a rapid expansion of Government debt levels. At some point, the nation’s payment holiday (maintained by low interest rates) will end and it’s inevitable that tax rises will have to follow. Rishi Sunak will be hoping that the economy is in better shape to absorb these costs by then.