Chancellor Rishi Sunak Looks To Boost The Economy After Lockdown
The Chancellor Rishi Sunak, announced a series of initiatives designed to help the UK economy as it emerges from the coronavirus lockdown.
The statement comes ahead of the Autumn Budget and covered areas including the winding down of furlough, the new job retention bonus, the kickstart scheme, a VAT cut for the hospitality sector and a stamp duty holiday for house purchases up to £500,000.
Our team of lawyers have examined the statement and analysed what it means for businesses and individuals.
Jeremy Raj, National Head of Residential Property at Irwin Mitchell, commenting on the announcement on Stamp Duty, said:
“The Chancellor prefaced his announcement by explaining how key the residential property market and the housebuilding sector are in relation to the confidence and strength of the economy overall. There is no doubt that the recent uncertainties and practical difficulties created by lockdown have had a massively detrimental effect.
“The changes announced to SDLT today went further than most within the industry had dared hope. With an immediate increase in the tax free band to £500,000 for a fixed period until 31 March 2021, there will be a real boost to the sector. There will also be widespread relief that the implementation has not been delayed until the autumn, which would potentially have stalled the market entirely.
“It is important to note that while the effect on the London market will be minimal, the vast majority of conveyancing transactions throughout the country will see a significant and immediate bonus effect, that should encourage greater activity.
“We can however expect a number of interesting discussions regarding how this windfall is to be shared between buyers and sellers. Clearly anybody that completed their transaction within the last month or two will be rightly upset to have missed out. It also remains to be seen whether the market reacts by adjusting prices overall, or leaves the windfall with buyers.
Claire Petricca-Riding, partner and National Head of Planning and Environmental Law, commented on the of ‘green jobs for green recovery’ package and said:
"These measures take the equivalent of 270,000 cars off the road. They come on the back of Boris Johnson’s ‘build, build, build’ speech last week when he discussed the levelling up on infrastructure projects.
"It is hoped that such measures will make us assess energy efficiency to cut carbon emissions. Whilst home insulation might not be a sexy message, it is an important one. The combination of this and “green” jobs is not necessarily an overly new message as we have been hearing some of this over the last few weeks - but it does bring the environment to the heart of decision making and the recovery programme.
"It is a long way from the ‘cut the green c***' from the previous administration and the reliance on fracking as a primary energy source. It would have been nice for some of the levelling up to focus on renewable energy projects, but as the Shadow Chancellor said – we are assuming this will come in the Autumn budget. Or if not assuming – then we live in hope that this vital element of the ‘green print for a green recovery’ is on the cards."
Sybille Steiner, Employment partner at Irwin Mitchell, said:
"The Chancellor has not extended the furlough scheme beyond 31 October 2020 but has announced that the Government will pay firms a £1,000 bonus for every staff member kept on for three months after the furlough scheme ends until the end of January 2021. If every furloughed staff member was brought back the job retention bonus would cost as much as £9.4bn. details of how this scheme would work will be published later. Whether the payment of £1,000 per retained employee under the scheme is sufficient to prevent widespread redundancies after the furlough scheme ends remains to be seen but seems unlikely at the moment."
Commenting on the VAT reduction for the hospitality sector, Sarah Cardew, Business Tax partner at Irwin Mitchell, said:
"The Chancellor has today announced a reduction in VAT for the hospitality and tourism sectors for food, accommodation and attractions from 20% to 5%. This measure is to be in place for six months starting from next Wednesday (15 July 2020) and ending on 12 January 2021. It will apply to pubs, cafes, hotels, B&Bs, restaurants, zoos, campsites, caravan sites, cinemas, theme parks and more.
"This measure was announced in the final part of the Chancellor’s three step plan for jobs and involves protecting jobs that already exist. The measure has been introduced to ensure that the sectors have the confidence to open their doors, invest in keeping their premises safe and protect jobs by knowing that there will be enough demand. The hospitality and tourism sectors have been particularly hard hit by the Coronavirus pandemic with 1.4 million workers having been furloughed. The Chancellor acknowledged that people are feeling cautious about going out, but the hope is, that this measure will save jobs by increasing demand.
"The cut in VAT to 5% will, of course, only affect those products that are subject to VAT in the first place e.g. catered products. So, if these changes apply to cafes serving takeaway food, for example, the VAT cut will presumably only apply to catered products such as heated up food and not to the sale of most cold products. Accordingly, the VAT cut may not be as widespread as expected by consumers. It may also place an additional compliance burden on businesses and their accountants. It will be interesting, as ever, to see the detail."
Richard Potts, Chief Executive of IM Asset Management, said:
“Chancellor Sunak was disappointing in the size and ambition of initiatives. £30bn of fiscal stimulus in a £2tr+ economy that is expected by the IMF to contract by over 10% in 2020 and only recover by 6% in 2021 is unlikely to make much of a difference and risks damaging sentiment further. Dealing with this crisis requires, as the US Federal Reserve is showing, quick, decisive action that get the government ahead of market expectations. The Summer Statement initiatives failed to do this. Investors continue to be left confronting the prospects of nominal yields on government bonds that will see their real value eroded by inflation and a weak, uncertain economic backdrop for equities. There are ways forward for investors who are prepared to think differently but the average traditional “balanced” portfolio is unlikely to be fit for purpose in this environment.”
For further information and advice about the impact of coronavirus, visit the dedicated section of our website by clicking here.