Summer economic update 2020

The summer economic update had the feel of a mini-Budget, with the Chancellor announcing a number of new measures as part of his “plan for jobs”.

The £160 billion spent by the Treasury so far on Coronavirus-related measures has constituted the first “protection” phase of the government’s response to the virus. The Chancellor told us that we are now in the second phase, in which the government will focus on supporting people to find jobs and on giving businesses incentives to create and protect jobs. The third “rebuild” phase will follow.

The Chancellor confirmed that the furlough scheme will not be extended any further, but he did announce that employers will be able to claim a jobs retention bonus for previously furloughed employees that remain employed until 31 January 2021. A number of measures were announced to help 16 to 24 year olds find jobs, and the construction sector received much attention, with the main announcement being a SDLT holiday until 31 March 2021. Finally, a much trailed VAT reduction was announced, with VAT due to fall from 20% to 5% in key parts of the hospitality and tourism sector until January 2021.

Although this was not a Budget speech, the Chancellor committed up to £30 billion towards these announcements, and it is clear that he has not put away the Treasury chequebook yet.

Job retention bonus

The government will pay employers a bonus of £1,000 for each previously furloughed employee who is employed continuously until the end of January 2021, providing these employees are paid at least £520 per month on average. These bonuses will start being paid in February 2021. Further details as to how this scheme will work are due to be released later this month.

Moore Kingston Smith comment

Despite calls for the job retention scheme to be retained for the sectors struggling the most, the Chancellor has made it absolutely clear that it will end on 31 October 2020. Many businesses are now starting to consider very carefully what changes they may need to make to their workforce from November, and this new measure will help employers retain some employees whose jobs would otherwise have been at risk of redundancy. With more than nine million employees having been furloughed at some point, this could be a very expensive measure.

 

Kickstart scheme

A scheme will be introduced with the aim of creating new jobs for young people considered to be at the highest risk of long-term unemployment. This scheme is aimed at those aged 16 to 24 who are on universal credit. Under the scheme, the government will pay employers 100% of the national minimum wage for 25 hours a week, plus associated employer’s NICs and minimum pension contributions.

Moore Kingston Smith comment

The small print relating to this new scheme contained a number of restrictions which were not apparent from the Chancellor’s speech. Nevertheless, this scheme will undoubtedly help some of those in society who would otherwise be hardest hit from the economic fall-out of the pandemic.

 

Other job measures

The Chancellor announced a wide range of other measures aimed at supporting, protecting and creating jobs. Included among these measures were further funding to support traineeships, work placements and apprenticeships, and substantial additional funding for Jobcentres to help unemployed people find jobs. In total, these measures are projected to cost £1.6 billion.

Moore Kingston Smith comment

The Chancellor has put together a wide-ranging package of support. Businesses that take on trainees or apprentices (or that could in the future) will need to look carefully at the assistance that will be available for them, and factor this into their plans. However, the grants of between £1,000 and £2,000 per individual are unlikely to be sufficient to cause businesses to take on young trainees or apprentices if this was not already part of their plans.

 

Stamp duty land tax

The nil-rate band limit for SDLT on residential properties will be increased from £125,000 to £500,000 from 8 July 2020 until 31 March 2021. Purchases of “additional homes” and of residential properties by companies are subject to SDLT at higher rates. In these cases, the initial 3% rate of SDLT will apply to purchase consideration of up to £500,000. These new rates do not apply to transactions that were substantially performed before 8 July 2020 (even if they were not completed until afterwards). They also only apply in England and Northern Ireland, as Scotland and Wales have their own separate regimes.

Moore Kingston Smith comment

Whereas the purchase of a house for £500,000 would previously have attracted SDLT of £15,000, such a purchase will now attract no SDLT at all. The number of property transactions taking place in the UK reduced substantially at the start of lockdown; these have increased in more recent months, but clearly the Chancellor believes immediate support is needed to keep the construction sector moving. Clearly it is hoped that the SDLT reductions will not simply increase asking prices but that they will encourage more buyers into the market. It is surprising that those buying “additional homes” (e.g. buy-to-let properties and holiday homes) will also benefit from the policy but perhaps the government considers this an acceptable cost when weighed against perceived benefits for the construction sector as a whole.

 

VAT for the hospitality and tourism sectors

Two temporary VAT cuts were announced for particular sectors of the economy. These will both apply from 15 July 2020 to 12 January 2021, and will both see VAT rates cut from the standard 20% rate to the reduced 5% rate.

The cuts will apply to the following:

–  Supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafes and similar premises across the UK

–  Supplies of accommodation and admission to attractions across the UK.

Further guidance on the precise scope of these cuts will be published shortly.

Moore Kingston Smith comment

The hospitality and tourism sectors have been massively affected by the lockdown. These sectors together employ millions of workers, many of whom would find it difficult to find jobs in other industries, and supporting jobs in these sectors is therefore critical to the Chancellor’s plan. This measure will cost an estimated £4 billion, and it is hoped that will translate into increased profits and avoid mass redundancies in these fragile industries.