The Chancellor’s Summer Statement was a Budget in-all-but-name, with £30 billion of tax cuts and spending commitments rightly focused on jobs and some, but not all, of the hardest-hit sectors, the Resolution Foundation said today (Wednesday).
While significant, the new policies only amount to a 20 per cent increase in the size of the Government’s pandemic response, which now totals £190 billion, or 9.4 per cent of GDP. This highlights the scale of the Government’s emergency measures since the March Budget, with Resolution Foundation analysis suggesting it puts the UK on course for borrowing to hit £350 billion this year.
The Chancellor announced several tried-and-tested recession-fighting policies, including a welcome £2.1bn Kickstarter youth jobs scheme, a £3.8bn cut to stamp duty and £2bn of vouchers for retrofitting homes in aid of the net zero carbon target.
This Kickstarter Scheme, triple the size of the Future Jobs Fund that it replicates, could create up to 350,000 jobs for young people. It will be a huge delivery challenge however, that will require many of these jobs to be created by local authorities, rather than private companies.
Temporarily raising the stamp duty threshold to £500,000 will largely impact on higher house price parts of the UK. Someone buying the average home in the North East will see no gain, while a buyer of an average home in London will save over £14,000. The average first-time buyer already pays no stamp duty in all regions and nations except London, and therefore won’t benefit.
Beyond policies seen in previous recessions, the Chancellor rightly focused on the sectors hit hardest by the current crisis, such as hospitality and tourism.
The £4 billion VAT cut from 20 to 5 per cent for food, accommodation and attractions will have a dual effect of boosting consumption in those sectors when it reduces prices, and giving cash to struggling businesses when it does not.
It is a far more substantial intervention than the ‘Eat-out-to-help-out’ voucher scheme, which shows the creativity needed to support hard-hit sectors, but is on far too small a scale to make a significant impact. Both schemes exclude some of the very hardest-hit sectors, such as face-to-face non-food retail.
The Job Retention Bonus of £1,000 for firms that bring back furloughed workers and still employ them in January will not make a major difference to employment levels. The significant deadweight cost, with payments mainly going to firms who would have brought back those workers anyway, is best thought of as cash grants to firms in the sectors that were hardest-hit by this crisis.
Overall, the Chancellor has announced a welcome set of measures that add to much bigger policy announced over the last few months. The unprecedentedly large steps previously taken to protect incomes, have now been followed by much more normal-sized measures to support jobs and demand, particularly in the hardest-hit sectors. Given that this economic crisis is here to stay until a vaccine is found, the Chancellor is likely to need to return with further support for demand and employment in the Autumn.
Torsten Bell, Chief Executive of the Resolution Foundation, said:
“Today’s Budget in-all-but-name was a £30 billion top up to a pandemic response that is approaching 10 per cent of GDP and will push borrowing to around £350 billion this year.
“The focus on jobs and some, but not all, hard-hit sectors was very welcome. Kickstart jobs for young people represents a tried and tested policy, but the new Job Retention Bonus is poorly targeted at those jobs that are most at risk of being lost.
“The Chancellor is right to focus VAT cuts on food, accommodation and attractions. However, the lack of support for face-to-face retail means significant challenges for Britain’s High Streets. The innovative meal deal voucher scheme is far too small scale to make a significant difference.
“The Chancellor, having previously announced huge measures to protect household incomes, has now set out much more normal demand support for the next phase of this crisis. That might be sufficient if the UK sees the V-shaped recovery we all hope fora. But given that this economic crisis is likely to be with us until a vaccine is found, he should expect to be returning with further measures to support the economy in the Autumn.”