Fred Mear, Associate Professor in DMU’s Leicester Castle Business School, runs through the main points of Rishi Sunak’s summer statement and gives his own opinion of what the Chancellor will be hoping to achieve with these measures.
“As a summer statement, Rishi Sunak’s announcement today was a starter for 10 but it remains to be seen whether he has done enough to start people spending again,” he said.Furlough
Businesses are being offered a £1,000 bonus for each employee that they retain until January, as a way of preventing mass unemployment when the furlough programme ends in October. This will help ease the cost of employees returning to work. However, I think the impact will limited as employers will not keep people if they aren’t confident there is demand for their services need them just to get a £1,000 bonus? VAT
There was news of support for the hospitality and tourism industries with a cut in VAT to 5% but it’s interesting there’s nothing there for manufacturing, or retail which are also hard-hit. It is unlikely to be passed on to the consumer but will help with the additional costs caused by reduced capacity and social distancing. The tourism sector in the UK already has problems coping with demand, but it should help business cash flows and reduce costs. Vouchers
Behind the money-off ‘Eat Out to Help Out’ vouchers you can see that the Chancellor is hoping to get people going back to pub food and restaurants. It’s a bit like a Groupon offer in that it’s Monday to Wednesday up to half price. However, it will be a move to encourage people to get out and about (when they can) and support days out and spend money again.
The people that are most likely to benefit from these measures are the ones who are the most risk-averse groups – those in their late 40s and 50s, middle classes who are wary of visiting restaurants and pubs. Will it be enough to get them back?Stamp Duty
Cutting stamp duty will put more money into the economy and help confidence in the housing sector which is so important to the psyche of UK spending. It has limited impact on first time buyers but should help those wishing to move home and those who wish to downsize. History suggests it will inflate house prices in the short term as people rush to beat the March 2021 deadline, but risks a housing slump in the spring of next year and the return of negative equity.
The Chancellor will be hoping more people will press on and move home, and in doing so spend money on redecorating and new furniture boosting the economy in that way. It is a fairly blunt tool and much of the money will go into the record savings being enjoyed by those still in full employment.Job Creation
This was interesting – the Chancellor has previously said he wants to create ‘jobs for everyone’ but this was focused on young people specifically and again there is a time limit to the support available.
Are companies in a position to know what their outputs will look like next year in order to plan to take on new staff?
Creating jobs for the hardest hit group, including school and university leavers, is to be welcomed. There was however little (other than more DWP job coaches) for there for those in their 40s and 50s losing their jobs as furlough eases who will be looking for jobs, some of whom will be looking for the first time in many years. In Summary
The Chancellor said we were moving into phase 2 – Job creation and as a summer statement to get things shifting, it’s done a few of the things that are needed using traditional approaches to stimulate an economy in recession. BUT this is not a traditional recession and I don’t think the ideas were particularly inspiring in terms of how the government is looking to set the foundations for jobs in the post Covid-19 economy we want. Only £2 billion of the £30 billion. Package was for the environment and the levelling up relied on infrastructure building only. We now need to see how it will work but this is a holding statement until the main event in the Autumn.
It was a crucial short-term confidence boost, but this was a pleasant aperitif and we must wait until the Autumn for the main course.
Posted on Wednesday 8th July 2020