Interestingly, the Parliament.uk website suggests a Budget is due to be delivered in the Autumn – the Budget in March 2020 actually the deferred Budget from 2019. So we might be back here in a few weeks time to re-analyse Rishi Sunak’s next stage of his 3-stage plan. For today, £30 billion has been pledged to boost jobs in the UK.
There’s also the Prime Minister’s “New Deal” to analyse, where Boris Johnson announced £5 billion on infrastructure spend.
So what was announced today? And what does it mean to us?
Budget or No Budget?
Normally the UK Government has an Annual Budget where the Chancellor of the Exchequer makes their announcement on the spending and tax plans for the year. In addition to this, halfway through the year between Budgets, the Chancellor makes an additional Statement to tweak the funding plans. Effectively in recent years it’s become a mini-Budget, especially if new funding commitments needs to be made.
The last Budget was made on the 11th March 2020. This was actually the deferred Budget from 2020, delayed due to the General Election. The March Budget was quickly followed up by extra announcements for the Job Retention Scheme and the Self Employed Income Support Scheme on the 20th & 26th March respectively.
So today’s announcement was billed as an update on the economy. The Government had previously announced the Job Retention Scheme would look to end in October (with employers contributing more in August onwards) so questions were being asked on how this would be replaced. In addition certain sectors which had not re-opened – especially the entertainment industries such as theatres – were announcing they were struggling and crying out for help.
Although a report has been published for today’s announcement, it’s nearly 100 pages shorter than the Budget statement in March. Although some of the layout and terms look similar, it’s crucially missing three key details:
- A link to future years, showing how much they expect the policy to cost over the next few years. (Arguably this isn’t necessary as all these spending commitments are due to conclude before the next Budget in March 2021).
- Reference to previous spending commitments from previous Budgets / Statements, to give a combined view of the Government’s tax & spending plans in totality.
- References to changes to income – usually Chancellors like to show how their spending commitments are going to be funded.
Today’s “Plan for Jobs” report includes a reference to providing further detail on measures announced by the Prime Minister on 30 June 2020 – so let’s take a look.
From Life Support to Rehabilitation?
Today was an announcement on jobs. Rishi Sunak was keen to promote this as the second part of a three-part plan:
If the first phase of our economic response was about protection…and the second phase – the phase we are addressing today – is about jobs…there will come a third phase, where we will rebuild.The Rt Hon Rishi Sunak MP.
A Plan for Jobs 2020 speech as delivered by Chancellor Rishi Sunak.
This is Rishi Sunak trying to do a transition – he wants to remove the life support machine from the UK economy, but without significantly maiming the patient in the process. He amount of Government intervention in March was unprecedented, especially from a Conservative Government – a note I made at the time. We now know this has cost around £69 billion, a simply unimaginable amount of state intervention.
No wonder Rishi Sunak is desperate to end this amount of intervention. Quite apart from the wider question marks remain on if we’re moving out of lockdown too soon, the question is how to move the UK Economy onto a stage of rehabilitation.
Overall, Rishi Sunak pledged nearly a further £30 billion of investment, not an inconsiderable amount to spend. The difference here is that all of these have definitive end dates, all ending before a potential Spring Statement in 2021. So while few can doubt his intent, the question is – is it targeted correctly?
Job Retention and Training
Firstly is a shift from the current Job Retention Scheme to a new ‘Job retention bonus‘ to encourage firms to retain furloughed staff. This will pay a one-off £1000 payment to employers for every furloughed employee retained to the end of January 2021, where the employee earns over £520 per month.
The intention by the Chancellor is obvious – encourage businesses to bring staff back from furlough and keep businesses supported with the hope that by January 2021 enough demand will have returned to allow businesses to be able to cover their payrolls in full, rather than making redundancies now and maybe rehire staff later. Several businesses have already announced redundancies and closures due to reduced demand.
So will this be enough? This poses a dilemma to businesses. The £1,000 is a small amount compared to the payroll cost for even a single employee between now and January 2021. But it might prove a motivation to keep employees hired, especially for those businesses with large payrolls – a cash boost would certainly be welcome. However, the law of unintended consequences might kick in, with non-furloughed staff being made redundant instead. It’s unlikely such an action would survive employment / redundancy regulations. It will be interesting to see how businesses, especially in the retail and hospitality industry, will react and if it will encourage them to change closure plans.
Sunak also announced the Kickstart Programme. This programme represents a £2 billion fund to “create hundreds of thousands of high quality 6-month work placements” aimed at those aged 16-24 who are on Universal Credit. The Government will cover 100% of the relevant National Minimum Wage for 25 hours a week, plus the associated employer National Insurance contributions and employer minimum automatic enrolment contributions.
Further support to young people comes in the form of £101 million for the 2020-21 academic year to give all 18-19 year olds in England struggling to find employment opportunities the opportunity to study targeted high value Level 2 and 3 courses.
There’s an argument that younger people have been disproportionately impacted in employment – with the retail sector contracting due to reduced demand for the High Street and Coronavirus impacts, and young people tend to make up the majority of retail employment. However I’m also equally concerned about those being made redundant elsewhere. Many businesses beyond retail are having to cut costs, due to reduce demand and the money needed to be spent on Coronavirus response. Redundancies are happening across the board (I myself have 3 friends at-risk or being made redundant) and the older workforce – those 50+ – are more likely to find getting back into work disproportionately hard.
The government has pledged £895 million to enhance work search support by doubling the number of work coaches in Jobcentre Plus before the end of the financial year across Great Britain. But should more have been done to support older workers, both to retrain and to coach them how to complete an interview, many who might not have been through one in many years.
Reduced VAT, stamp duty, and a free lunch.
I’m no fan of reducing VAT as a method to boosting the economy – something supported by a study by PriceWaterhouseCoopers in 2009 after the VAT was reduced to 15% in 2008. Reducing VAT to a new custom rate is a highly complex process for finance and pricing departments across the UK and businesses cannot be blamed for leaving the consumer price the same and keeping the difference themselves. So news that Sunak was considering a VAT reduction filled me with dread.
In the end, it ended up being shrewd – both by targeting just the hospitality and entertainment industry, and reducing the rate to 5%. There already is a tax band of 5%, used usually for utilities and selected services. Therefore it’s a lot simpler to reprogram systems to use another tax rate that already exists, rather than to a new bespoke VAT rate. How effective it will be at stimulating demand remains a question though; an average week break in Wales for a family of four over August is £6001, this would represent a saving of £75 – not a small amount, but will that overcome fears of travelling with Coronavirus still prevalent.
Stamp duty is being suspended on main home purchases for properties up to £500,000. The argument here is to stimulate the housebuilding industry, which employs an estimated 240,000 people are directly employed by housebuilders and their contractors, and between 500,000 and 700,000 employees are indirectly supported in the supply chain2. There would seem to be other ways to stimulate housebuilding (e.g. with bringing forward much-needed social housing).
There’s also a new Green Homes scheme, 50% for homeowners to make their homes more energy efficient, up to £5,000 per household. For those on the lowest incomes, the scheme will fully fund energy efficiency measures of up to £10,000 per household. The idea is to support over 100,000 green jobs, and presumably to contribute to making the UK carbon neutral by 2050 and reduce utility usage.
The final offering is Rishi Sunak stepping on Meerkat Movies’ toes, offering a scheme for 50% off eating in restaurants, up to a maximum of £10 per person Monday to Wednesday during August 2020. It’s up to individual restaurants whether to sign up to the scheme, and they will need to reclaim the money from the Government. Again the question is will this be enough to encourage more people to dine out, or will it just move demand to those days – especially in August when people tend to be more flexible around when they go out. Plus how much will it cost restaurants – and the Government – to administer the scheme. I can’t help but wondering if offering grants for businesses to come Covid-secure (as best as possible), maybe in conjunction with a certification scheme for those restaurants meeting the standards, would be a better approach. Helping to pay for plastic screens between tables, protective equipment for staff etc., would have been infinitely more helpful.
So what else could have been done?
One big thing that stands out straight away is a lack of support for the self-employed. The Self-Employed are mentioned only once in this report, in a note that by stimulating the construction industry will benefit those who work in that sector, many of whom are self-employed. No support is being offered for those who are self-employed in other sectors, and for those who are sole-traders and therefore cannot take advantage of the job retention bonus and have no need of young employees, leaves them in a very precarious position.
The other challenge is that with the Job Retention Scheme ending in October, what about those sectors who might still be in shutdown by then? An argument exists for more targeted support, such as what’s been offered to theatres and the arts and the targeted reduction of VAT rate – and there was an opportunity for more of this in today’s statement.
Also, with much news that car parking costs for NHS workers – which had been suspended during the early period of the UK Coronavirus outbreak – being resumed, an announcement in this area would surely have been a popular statement (even if not directly related to jobs).
Is “New Deal” is simply the Old Deal?
The Prime Minister announced on the 30th June a new investment strategy, the New Deal.
The original “New Deal” originated in 1930s USA, trying to recover from the Great Depression. It was a series of public works projects and investments, policy & financial reform, and regulations designed to stimulate the economy. The basic theory was by increasing spending, the average American would have more money in their pocket, would therefore spend more, which would boost business – Keynesian Economics in action. It’s important to note it wasn’t just the spending commitments that comprised the New Deal, but the financial & social reform as well.
The Prime Minister’s New Deal is an infrastructure plan, pledging to spend £5 billion to stimulate the economy. In my previous blogs, I’ve commented how I’m a fan of Keynesian economics, that infrastructure investment during a time of recession is a smart move. And this would seem to meet this, with investments in:
- NHS maintenance and A&E capacity
- Modernising the NHS mental health estate
- Health Infrastructure Plan
- Further Education (FE) estate funding
- School estate funding
- School rebuilding programme
- Court modernisation
- Prison and probation estate funding
- Local infrastructure projects
- Towns Fund capital acceleration
- Local road maintenance
- Unblocking Manchester’s railways
- World-class laboratories
The biggest criticism to this – other than it doesn’t come anywhere close to how much the original New Deal spent to invest – is that this isn’t new money – most of these spending commitments have been made previously. Indeed in the report today it comes under the section of “Accelerating investment”. While there’s no doubt this investment is needed, especially in the courts service, school rebuilding, and the NHS Mental Health estate, additional money would surely have been a better proposition.
A final word
Firstly we can’t understate how unusual these Budgets and funding decisions are, and even today’s announcement of an additional £30 billion of spending represents a huge (and uncosted) intervention unlike anything we’ve seen in recent times.
There’s no doubt a “day of reckoning” is coming, where decisions will need to be made of how the UK debt will be paid off. Boris Johnson has pledged not to return to austerity, but without increases in taxation (and remember, increasing income tax was ruled out in the Conservatives’ manifesto) it’s hard to see how this will be achieved without risking alienating the Conservatives’ business backers.
In her statement, the Shadow Chancellor Anneliese Dodds tried to walk a line between not opposing policy for opposition’s sake and being critical where she felt justified. Her point on more targeted support is a good one, and although more cumbersome could have been cheaper and easier to implement. Big schemes which anyone can claim, such as the Job Retention Scheme, make sense at the start of a crisis where action needs to be taken – and seen to be taken – as soon as possible makes sense; we’re now further down the road, and Sunak has had more time to plan this statement. His interventions should be targeted so those businesses who would have, in all probability, brought all their employees back off furlough anyway, don’t claim a benefit they arguably didn’t need.
Several parts of the announcement today is also trying to generate demand in the economy, either by VAT reduction or the meals out scheme. Arguably giving consumers more confidence to go out would be far better. Helping businesses getting Covid-secure, giving businesses and consumers clear advice when going out for meals, and mandating face masks in public and temperature checks could have achieved more.
While full of intent and there’s no doubt £30bn is making a statement, there’s question marks as to the efficacy of this statement. Will it genuinely keep employment ticking over until sufficient demand returns to the economy? Or is it just deferring problems until later on? And why the omissions for the self employed, the people of Leicester, and sectors of the economy still in trouble. There’s no doubt to the attempt to rehabilitate the economy. Just the choice of treatment.
8th July 2020
Featured image source: Daily Mail.