UK Summer Economic Update: A plan for jobs and consumer confidence
Since first coming into power in 2010, arguably one of the Conservative Party’s greatest achievements has been job creation. In his second major economic intervention since becoming Chancellor earlier this year, Rishi Sunak focused on job protection and creation and giving key sectors enough of a boost to maintain confidence before having to make some of the more difficult decisions in the autumn.
Riding high on a wave of popularity, Sunak’s mission to date has been to save jobs and protect businesses from having to close their doors in the face of a health and economic crisis. More than 3 months after the Prime Minister locked down the country, the Chancellor knows he needs to encourage consumers back onto our high streets and back into pubs and restaurants and inject some confidence back into the economy.
This update was always going to present a challenge for Sunak; he handed down a budget four months ago and will present another budget and spending review in the autumn and Treasury and his office were been at pains to downplay rumours this was going to be an emergency budget.
A cynic could say the Chancellor has put off the biggest of decisions, mainly, how the Government plans to pay for this. Though, a more sympathetic observer might suggest Government and Treasury waiting to see how much consumer confidence and consumption lifts before making irrevocable decisions on spending cuts and tax increases.
As the Government tries to balance its competing constituencies happy – low tax, small government Tories, and first-time Conservative voters keen to see Government step in – he can’t keep everyone happy. It seems, this time at least, that voters who want Government to step in, not aside, are the winners with Sunak saying we will do all that it takes, and the Government is unencumbered by dogma. Though, when pushed (by his predecessor no less) he acknowledged the need to balance the books and get down national debt.
With these newly announced measures, the Chancellor has pivoted from not just focusing on job retention but also now to consumers and how we can get money flowing back through key sectors – an acknowledgement of just how reliant our economy is on social consumption.
A 3-Point Plan for Jobs
Earlier this year, Boris Johnson committed to helping young people get the skills they will need to enter the workforce, some of whom are going to be the hardest hit by the economic impacts of coronavirus and today the Chancellor announced the Kickstart Scheme to help unemployed young people get a job; this scheme will see the Government pay businesses to create jobs additional jobs for people aged 16 to 24. The Government is also investing in more careers advisers, creating places on courses and skills academies and job coaches. Alongside this, businesses will be paid up to £2,000 to take on apprentices.
There is an accepted view that investment in young people now will stop further unemployment costs down the road but some will question whether this is a stop gap measure that just delays the inevitable until subsidies end early next year. Today, and in its Budget this year, the Government reaffirmed the Conservative Party’s commitment to investing in infrastructure and today the Chancellor repeated the PM’s line – the Government is doubling down on levelling up. Key to the Government’s mantra is that job creation starts with significant investment in infrastructure and the Government will bring forward nearly £9bn worth of new infrastructure, maintenance and decarbonisation projects. The Government will face calls to identify fledgling sectors (such as hydrogen fuel cells and carbon capture and storage) that will continue to organically create job opportunities in the private sector, rather than through Government-funded infrastructure projects.
With the furlough scheme winding down in October, the Government has made a £9bn commitment to keep people in work saying that if businesses stand by their workers, Government will stand by them. The challenge for the Government will be giving cash-strapped businesses enough confidence in their future that a £1,000 bonus in January is worth the cost of bringing back workers in uncertain times.
While there was a clear focus on jobs and skills for young people and getting furloughed employees back to work there are some clear gaps and uncertainty about whether the Government will plug them, or let people fall through.
As the job retention scheme ends in October, so too does support for self-employed. There is, almost, universal acknowledgement that the job retention scheme can’t and shouldn’t go on forever and to leave it open just gives false hope. However, there are fears that incentives won’t help the self-employed and there are older workers who may be left behind in the drive to help those under 25. There will be increasing calls for the Government to address the intergenerational imbalance in its approach with suggestions older workers in vulnerable sectors are at risk of being left behind. The biggest loser, though, may be workers in the aviation industry with fears that the sector will take years to have any semblance of recovery with significant job losses – and experience lost too – when the furlough scheme comes to an end later this year.
Housing and Energy Efficiency
Sunak said that uncertainty continues in the housing market and that the UK needs the housing sector to thrive and be confident to drive growth and create jobs. One of the worst kept secrets in the Lobby was confirmed with a cut in stamp duty that will see 9 out of 10 people buying a main home this year pay no stamp duty and the average bill fall by £4,500. Effective immediately, the threshold will rise from £125,000 to £500,000, with the temporary cut running until March 31, 2021. With house prices having fallen for four months in a row, and prospective buyers having been able to save more while in lockdown, the Government hopes this will create a rush and mini housing boom between now and March next year.
With the Government’s attention focused, initially, on the health impacts of coronavirus and now the economic impacts, there had been some concerns the Government simply wouldn’t have the bandwidth to continue its sharp focus on its efforts to decarbonise swathes of the economy as the UK works to meet its 2050 Net Zero target.
We haven’t seen a German-style multi-billion-pound energy efficiency programme. However, announced today are a raft of measures as part of a £3bn play to improve energy efficiency, cut carbon and create jobs.
- £5,000 grants for energy efficiency work in homes
- Fully funded energy efficiency measures for low income households up to £10,000
- £1bn for public sector decarbonisation, and
- £50m for decarbonising socially rented homes
The grants for energy efficiency measures in homes bring a triple whammy of benefits – supporting jobs, reducing energy bills for consumers and cutting carbon.
With more detail to come, key players across the sector will be looking to see what this means for the Government’s approach to low carbon heating and energy efficiency and whether it will adopt a one-size fits all approach or a mixed-technology approach.
Hospitality and Leisure
As some restrictions have started to ease, the Government has made clear the best thing it can do for businesses in the hospitality and leisure sectors is to boost confidence, encourage people to spend money and get high streets bustling again.
From next Wednesday, the Government will cut VAT for the hospitality and tourism sectors for six months to boost consumer confidence and consumption. Presently 20%, it will be cut to 5% for food from restaurants, pubs and cafes and non-alcoholic drinks as well as accommodation and ticket prices to attractions for six months.
One area of concern had been whether or not consumers would have the confidence to go back to restaurants, pubs and clubs over the summer. With 130,000 businesses and nearly 2 million jobs in the sector, the Government have unveiled its ‘Eat Out to Help Out’ Scheme that will see the Government subsidise discounts on meals ever Monday, Tuesday and Wednesday in August.
The challenge for Government will be how they can encourage consumers to maintain this return to normality once the incentives end in September. Sammy Wilson of the DUP, tongue in cheek, suggested that Government might need to offer a VAT discount on clothing in September to account for all the eating out people would be doing in August… the Chancellor said maybe we should focus on getting gyms open first.