Rishi Sunak, Chancellor of the Exchequer, announced a £30 billion plan to save the UK from mass unemployment by encouraging consumption. The measures announced aim to mitigate rising unemployment paying employers to bring back furloughed workers and reducing taxes for homebuyers and the hospitality sector. The latest proposed measures top the £150 billion already committed in fiscal support in the aftermath of covid-19.
The UK economy slumped 25% in March and April as a result of the coronavirus pandemic and associated lockdown. Recovery for the worst hit sectors looks to be distant at this stage.
The UK has seen close to 45,000 coronavirus related deaths to date, which makes the UK the hardest hit country in Europe. The IMF has forecast 10% reduction in UK GDP for 2020, worse than the US and Germany. There is also the potential economic volatility to consider later in the year when the UK leaves the EU unless a post-Brexit trade agreement is reached.
The UK level of state borrowing will hit 15% GDP, levels not seen since World War Two as a result of the cost of dealing with covid-19.
Property Tax Cut
Mr Sunak announced a temporary cut in Stamp Duty (SDLT) by increasing the threshold to properties valued at £500k. This will continue until 31 March 2021. This will potentially save buyers up to £15,000 on a house purchase.
Green Home Grants
The government has pledged £2billion in grants, which will enable homeowners to claim up to £10,000 to make their homes more energy efficient.
Employment Retention Bonus
The government has pledged to pay employers £1,000 for every worker who returns to their job from furlough. There are currently approx. 9 million workers furloughed.
Job Creation for 16-24 Year Olds
A £2billion fund has been created to create 6-month placement jobs for an estimated 350,000 unemployed 16-24 year olds, as well as a large increase in apprenticeships partly funded by the government contributing £2,000 per apprenticeship.
VAT Cut for Hospitality and Discounts on Dining Out
To boost the UK hospitality and tourism sectors, VAT will be cut from 20% to 5% for 6 months until January 2021 on food and non-alcoholic drinks from hotels, restaurants, pubs and cafes, as well as accommodation and admission to attractions. In addition, eating out Monday – Wednesday would attract a discount of up to £10 per person based on 50% meal cost during August.
There were no specific measures announced for other hard hit sectors, such as retail or aviation. Some business leaders had lobbied for a national insurance holiday or wider VAT cut. Also, there were no specific measures to support deprived areas of the UK, particularly in northern England.
Many of the measures had been leaked before the Summer statement, so markets showed little reaction with the yield on gilts stable and sterling broadly unchanged.
A full Budget statement is expected in the Autumn, which could result in further stimulus and support measures.
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