Summer Statement update 2020

July, 2020

The Chancellor of the Exchequer delivered the Summer Statement on 8 July 2020 and announced a series of eye catching policies designed to encourage people to return to normal and businesses to return to work. This note summarises the key points.

The Chancellor views the government’s economic response to Covid-19 as being in three phases:

  • March 2020: The first phase of the response introduced social distancing and confirmed that businesses must close to halt the spread of the virus. The government introduced one of the largest economic responses across the world, including the £160 billion support plan that introduced job retention schemes, tax referral, tax grants, loans, funding for public services, etc.
  • July 2020: The second phase of the response is aimed at reopening our economy. We are facing profound economic challenges presented by Covid-19, and in just 2 months our economy has contracted by 25% – this is the same amount that our economy has grown in the previous 18 years.
  • Third phase: The first phase of the government’s economic response was about protection, the second phase is about jobs. There will be a third phase when we start to rebuild. The third phase will aim to spread opportunity, and repair and heal the wounds inflicted by Covid-19.

There will be a budget and spending review in the autumn, but over the medium term, Sunak’s approach is that we must put public finances back on a sustainable footing, however that might be achieved.

The plan

The central part of the economic response so far has been the job retention scheme – but furloughing staff cannot go on forever. The government recognises that when the furlough scheme ends, in October 2020, it will be a difficult moment for employers and employees.

In short, the new plan will include:

– An employment “kick-start” scheme and an incentive to boost traineeships (£1000 per trainee) and apprenticeships (£2000 per apprentice 16-24, £1500 per apprentice 25+);
– An incentive to retain furloughed staff (£1000 per employee);
– A temporary VAT cut to 5% for the hospitality and tourism sectors;
– An “eat out to help out” incentive for the hospitality sector;- A temporary stamp duty holiday (making exempt the first £500,000 (instead of £125,000) of all property sales from all tax, effective immediately and running until 31 March 2021; and
– A £3bn “green fund”(e.g. from September, homeowners and landlords will be able to apply for vouchers to make homes more energy efficient).

Employment “kick-start” scheme, traineeships and apprenticeships

The chancellor has previously acknowledged that young people could be the worst-affected by the crisis when it comes to employment, as they are the age group most likely to be on the government’s furlough scheme – which is set to end in October. Already, between the start of lockdown in March and May, the number of people aged 24 and under claiming Universal Credit rose by 250,000 to almost 500,000.

The new “kick-start” programme is aimed at giving young people across Britain the opportunity to find jobs. The government will directly pay employers to create new jobs for 16 – 24 year olds. The government will cover the cost of 25 hours of work a week per new employee at the National Minimum Wage (£4.55 for under 18s, £6.45 for 18 to 20s, £8.20 for 21-24s) for 6 months. Employers can top up that payment if they wish.

The funding will be conditional on the business proving that they are hiring for a newly created job, that the employee is getting paid at least the national minimum wage, and that the employee is learning skills that are going to benefit the employee in the future.

Employers can apply for this scheme from next week, with the aim that the first “kick-starters” will begin work in Autumn.

The government has pledged an initial £2billion for this scheme, and have committed to there being no cap on the number of places available under the scheme.

In addition…

Traineeships: employers will be paid £1000 for every new trainee that they take on.

Apprenticeships: employers will be paid to create new apprenticeships. They will be paid £2000 per apprentice that they take on aged 16 – 24, and £1500 per apprentice they take on aged 25+.

Additionally, the government will provide £1bn to the DWP to support millions of people getting back to work.

Incentive to retain furloughed staff

 A Jobs Retention Bonus will reward and incentivise employers by offering them a bonus of £1000 per employee on furlough that they retain. The job retention bonus will be conditional on the employer retaining their employee until January 2021. This part of the government’s plan is aimed at getting as many furloughed staff back to their jobs as possible.

Temporary VAT cut to 5% for hospitality and tourism industry

VAT on the hospitality and tourism industry is usually charged at 20%. However, the government has decided that for the next 6 months that the VAT on food (restaurants, cafes, etc.), accommodation (hotels, B&Bs, campsites etc.) and attractions (cinemas, zoos, theme parks, etc.) will be cut to 5%.

The cut on VAT will begin Wednesday 15th July and will continue until January 12th 2021.

This part of the plan is aimed at giving businesses in the hospitality and tourism sector the confidence to reopen and invest in making their establishment safe enough for their customers to return.

“Eat out to help out” incentive

Throughout the month of August, an “Eat Out to Help Out” scheme for everyone in the country will offer a discount to anyone eating at a participating cafe, restaurant or pub from Monday – Wednesday.

Customers will be given a discount of 50% off up to a maximum discount of £10 per head (adults and children).

Businesses will need to register for this scheme online, and can register from next Monday.

Then, for each week in August, businesses will be able to claim the money back and funds will be transferred into their bank account within 5 working days.

Opinions on the new plan:

*Labour’s shadow chancellor, Anneliese Dodds, said the scheme “should help many young people to access work” but said the government had not yet done enough to address the threat of mass unemployment. She suggested that there should have been a Back to Work budget.

*Paul Johnson, director of the Institute for Fiscal Studies, said the scheme would “encourage employers to take on those most at risk” during this crisis but it could result in “creating jobs which aren’t really jobs” or push other people out of work.

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