Chancellor unveils £30bn plan to boost UK economy

Rishi Sunak has announced a series of measures aimed at boosting the UK economy as it emerges from lockdown, including a six-month job retention bonus for furloughed workers and temporarily slashing VAT on food and accommodation.

The Chancellor of the Exchequer called his summer statement “a plan to turn our national recovery into millions of stories of personal renewal”, adding: “We will not be defined by the crisis but our response to it.”

But Annelise Dodds, Labour’s shadow Chancellor, said: “Today, Britain should have had a Back to Work budget. But instead we got this summer statement with many of the big decisions put off until later.”

Addressing the House of Commons, Sunak acknowledged that people were worried about job security, noting: “We will do all we can to give everyone the opportunity of good and secure work,” and that he would “never accept unemployment as unavoidable outcome”.

Sunak said that 1.8m people were employed in the hospitality and entertainment sector, and “the best jobs programme we can do is restart these sectors”. He therefore announced a reduction in value added tax on meals eaten out, accommodation and attractions from 20% to 5%, starting next Wednesday, for six months, which he said was worth £4bn.

In addition, a so-called Eat Out to Help Out scheme was announced for August, where people dining out during the month from Monday to Wednesday can get 50% off, up to £10 per head. Companies are able to register for the scheme from next Monday.

Sunak said such a programme had never been tried before in the UK. “This moment is unique, we need to be creative.”

Other measures include a job retention bonus scheme, worth £1,000 per employee, for employers who bring back staff from furlough and keep them on until at least January 2021, potentially worth around £9bn.

There was also a £2bn Kick Start scheme to create job placements for young people aged 16 to 24, as well as extra funding for apprenticeships.

Sunak also confirmed a widely-expected temporary stamp duty change that increases the threshold to £500,000 from £125,000, which would take effect immediately and last until March. He also revealed £2bn of grants to help make homes more energy efficient.

Sunak called the measures “all part of our plan for jobs worth up to £30bn”.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, argued it was not enough to underpin a V-shaped recovery, however.

“In total, the fiscal package could lead to a cash injection of £30bn, or about 1.5% of annual GDP, though much will depend on how many firms bring back furloughed workers,” he said.

“The Chancellor hopes that economic activity will have rebounded sufficiently to ensure that employers bring back the vast majority of their furloughed workers, reducing the need for big fiscal support. Nonetheless, business surveys currently suggest that employment likely will be down about 4% year-over-year in the fourth quarter, hitting household incomes, while surveys of consumer confidences point to a sustained rise in their saving rate.

“So despite the Chancellor’s efforts, we still expect GDP to be about 5% below its pre-Covid level by the end of the year.”

Howard Archer, chief economic advisor to the EY Item Club, said: “The measures announced will add to the deterioration in the public finances that has been caused by Covid-19. The EY Item Club expects public sector net borrowing excluding banks to come in around £320bn, 15.6% of GDP.

“[We] suspect the economy contracted around 17% year-on-year in the second quarter, and expect the economy to return to clear growth in the third.

“The further easing of lockdown restrictions, including the relaxation of the social distancing rules on 4 July and the partial re-opening of the hospitality sector should help matters.” The EY Item Club is forecasting GDP to contract by around 8% over the year.

Chris Beauchamp, chief market analyst at IG, said: “For an economy so reliant on consumer spending, these are just trifles, of little use if consumers remain worried about the longer-term outlook for jobs and spending. Sunak gets 5 out of 5 for effort, but he will need to repeat the performance later this year and again in early 2021, since as he himself admits, we have only begun the journey to recovery.”

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “Employment was always going to be the top priority, with more than 9m people set to drop out of the furlough scheme and into a period of horrible uncertainty. The jobs retention bonus was an interesting flourish…but in the grand scheme of things, it’ll be a drop in the ocean for firms with major wage bills in the leisure industry.”

Carolyn Fairbairn, director-general of the Confederation of British Industry, praised the Chancellor for prioritising jobs, calling it an “important step forward”.

“Flattening the daunting unemployment curve about to hit our country could not be more important,” she added.

“Joblessness scars lives and hits the young and most disadvantage hardest.

“But prevention is better than cure. Many viable firms are facing maximum jeopardy right now. The job retention bonus will help firms protect jobs, but with nearly 70% of firms running low on cash, and three in four reporting lack of demand, more immediate direct support is still urgently needed.

“The Chancellor must continue to balance the need to invest in a long-term sustainable recovery while responding to the urgent challenges that companies are experiencing today.”

Helen Dickinson, chief executive of the British Retail Consortium, said: “It was disappointing that the Chancellor did not extend [the VAT cut] to the retail industry and the 3m people it employs. It was a missed opportunity and we hope the government will reconsider this ahead of the autumn budget.”

Noting the reduction in stamp duty, Jonathan Hopper, chief executive of Garrington Property Finders, said: “Such a big cut in the cost of buying a home will give a welcome shot in the arm to a property market which is still reeling from the impact of the pandemic, and there is huge relief that the changes are effective immediately.”

Eric Leenders, managing director of personal finance at UK Finance, the banks association, also welcomed the stamp duty cut. “[It] should give a welcome boost to the housing market, and in turn have positive knock-on effects for the wider economy.”