OVERVIEW : FINANCIAL STATEMENT BY CHANCELLOR OF THE EXCHEQUER, WEDNESDAY 8TH JULY 2020
Quatro sets out in this briefing the main elements of the Government’s summer economic update.
COVID-19 has caused an unprecedented public health and economic crisis. Prime Minister Boris Johnson and his government took the decision to effectively close down substantial parts of the British economy through imposing a lockdown to stymie the transmission rate of the disease. The cumulative effect is unknown and there is much speculation about the timing and profile of an economic recovery.
As we have seen, notably in Mr Johnson’s speech in Dudley last week, the Government is keen to reignite the economy, whilst avoiding a second peak in infections. We will be living with COVID-19 for some time in the absence of a vaccine and as such, economic activity will not be returning to earlier patterns in the near future. Building on substantial subsidy into the economy and uncertainty about demand, large parts of the UK’s economy have called for additional help to sustain their operations.
Current subsidy measures (on business rates and furloughing) are due to end in the autumn, and the focus has shifted to interventions to stimulate the economy and help people cope with the predicted significant job losses.
Politically, with heavily applied shades of Churchill and Roosevelt, Mr Johnson wants to demonstrate a vision, grit and a plan to carry the country out of this crisis. The political momentum is important; with the first speech last week with the broad strokes of the approach, now having the detail applied by his Chancellor, Rishi Sunak. This should be seen as a relaunch of this Conservative Government that -as the Chancellor said- will not be defined by the crisis but rather, by how it responds to it.
With the three word chorus of “build, build, build” ringing in our ears it fell to Mr Sunak to set out in detail how the Government will deliver this and critically for some hawkish elements in their own party, that they have the financial means to do so. The Spending Review in the autumn will clarify whether the Government has the sustainable financial position to deliver on today’s promises.
Today’s mini-budget was all about the “jobs, jobs, jobs” that will be created and preserved by the unprecedented Government’s intervention and the infrastructure stimulus announced last week. It contains measures to support the long-term unemployed back into work, to help young people with no experience and little skill find jobs and to drive the creation of green jobs. As Mr Sunak said, this is about values and creating opportunities for all is one of the key Conservative tenets.
The question remains whether it will be enough. The scale of the challenge is certainly daunting: the IMF expects the UK economy to contract by 25% as the final result of the crisis. Businesses, especially the small and medium sized ones that make up 80% of the economy, are saddled with the debt (government-backed) they took on to survive the crisis and the uncertainty about what comes next is crippling their ability to bounce back. And it isn’t only about the economy: COVID-19 plays the long game and a new wave in winter is not a far-fetched prospect.
So what does this £30 billion package consist of?
Education, science and skills
● For the next six months the Government will pay £2,000 to employers for each apprentice they employ.
● Funding for wew careers advisors and traineeships.
● Expand universal skills offer.
● Office for Talent, based in No.10, with delivery teams across government departments to attract, retain and develop top research and science talent across the UK and internationally.
● £1 billion to first 50 projects of a new, ten-year school rebuilding programme.
Energy & environment
● £40 million to set up a Green Recovery Challenge Fund to supportenvironmental charities and public authorities projects to create and protect 5,000 jobs involved in improving the natural environment, including planting trees, restoring habitats, clearing waterways, and creating green space for people and wildlife.
● £100 million to fund research into Direct Air Capture.
● From now until 31st March 2021, stamp duty will only apply to properties over £500,000 in value. ● Planning reform legislation to be introduced in July.
● £900 million to LEPs and Metro regions to fund shovel-ready projects to drive local growth and jobs.
● £96 million for the Towns Fund to improve high streets in 101 towns across England.
● £100 million for road improvements.
Industry and employment
● The Kickstart Scheme: £2 billion to subsidise minimum wage employment for the under-25s. Employers will provide 6-month placements and the government will cover the full salary for 25 hrs a week and up to £1,000 admin fee. Available from next month and subject to check that these are new jobs and not substitutions for firing existing employees.
● Traineeships. Will pay employers who take on 18-21 year olds. For level 2 and 3
● £1000 for every furloughed employee being brought back and kept through to January 2021. This is potentially a £9bn policy to bring people back to work.
● Furlough scheme will wind down in October.
● £88 billion in capital funding was announced at the Budget in March. To this, the Government added the £ 5 billion announced by the Prime Minister last week.
● Construction Talent Retention Scheme to support the redeployment of workers at risk of redundancy.
Green Jobs Package
£3 billion to create jobs that help the decarbonisation of the economy.
● £2 billion green homes grant. From September, homeowners and land owners can apply for vouchers to help towards the cost of retrofitting houses. Vouchers will be up to £5,000 , with low income households being able to claim up to £10,000.
● £1 billion to improve the energy efficiency of public sector buildings.
● £50m to improve the energy efficiency in social housing.
● Investing an extra £1bn in the Department for Work and Pensions to double the number of work coaches in job centres, expand the work and health programme, and develop a new scheme to help the unemployed.
Hospitality, retail and entertainment
These are the hardest hit sectors and they employ over 2 million people, disproportionately younger, women and BME. Many rural and coastal communities rely heavily on these sectors. Since lockdown, 1.4 million workers have been furloughed.
The Government set out a £4 billion catalyst package to protect 2.4 million jobs in these sectors.
● VAT on hospitality and tourism (food, accommodation, cinemas, theme parks, pubs) cut to 5%
● “Eat out to help out”: a £10 discount per head to everyone eating out from Monday to Wednesday for the whole month of August.