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Economic Update July 2020 summary for business owners
8 July 2020
The Chancellor announced today, a policy of ‘jobs, jobs , jobs’ to support the Boris’ policy of ‘build, build, build’. But, what did today’s economic statement cover that will continue to support businesses over what is likely to be a tumultuous 12 months ahead, and has the Chancellor done enough for business owners to be able to retain and recruit people in their business?
employment & Training
Despite already seeing crippling job losses in some sectors, Rishi Sunak made it clear that the furlough scheme would not be extended and would still be gradually wound down to end in October as previously planned.
However, it was announced that the Governments focus now was getting people ‘from furlough, back to work’ by rewarding and incentivising employers with a new Job Retention Bonus. For any company who brings back a furloughed employee from November and retains them until 31 January on continuous employment, the Government will pay a £1000 bonus per employee to the employer. This applies to all furloughed employees, where the employee must be paid at least £520 per month.
Whilst this is a positive step to bring people off furlough status and back to work, the concern for many business owners will be how they fund this with the bonus not being received until February 2021.
To combat youth unemployment, the Government has also announced it will pay businesses £1000 per trainee hired, to incentivise those who offer work to 16-24 year-olds.
Also announced, were payments to employers for each new apprentice hired between 1 August 2020 and 31 January 2021 – an amount of £2000 per person for those aged under 25 and £1500 per person for those aged over 25.
Whilst this may be useful to some businesses and sectors, with jobs in many sectors being cut and valuable employees having to be laid off, this funding will make little difference to many businesses who just simply don’t have the work to warrant taking on new people.
Another scheme was unveiled today – the new £2bn “Kickstart Scheme”. This scheme is designed to create hundreds of thousands of jobs for people aged 16 to 24 by directly paying their wages for six months.
This may be a bigger incentive to businesses to hire young people who are currently claiming Universal Credit. The scheme will be used to pay the National Minimum Wage for 25 hours per week, which can be topped up by employers to give them a better hourly rate or more hours. Employers will also receive £1,000 to cover their overhead costs. Employers can apply from August.
The announcements are a positive move to avoid a ‘lost generation’ of the workforce. However, it’s a very narrow support package aimed at a specific age range and experience level. This may not help businesses in the short to medium term as these new recruits won’t have the experience and training that businesses may need to kick start their business. But, it does enable an employer to recruit someone and gauge their potential.
It was disappointing to see that the National Insurance holiday that was rumoured before today was not announced. The best way to assist employment is to cut employers’ NIC. This is effectively an employment tax and could have been another initiative to help SMEs recruit and retain staff. Such a move could have helped more employers over a wider range of sectors and across the whole age range of their workforce.
There were many rumours of an overall cut in VAT, but Rishi Sunak has only targeted a temporary VAT cut for the tourism and hospitality industries. However, the cut was significantly higher than expected with it being reduced from standard rate of 20% to the reduced rate of 5% for 6 months. This will include food (eat in and take away), accommodation (hotels, B&Bs, campsites) and attractions (cinemas, zoos and theme parks). This cut in VAT runs from 15 July until 12 January 2021. There will be more details released in the next few days around what’s included.
The temporary VAT cut of 5% for accommodation and attractions will apply to supplies of accommodation and admission to attractions across the UK. This applies to the provision of food and non-alcoholic drinks from Restaurants, Pubs, Bars, Cafés and similar premises.
This move has given a welcome boost to the hospitality and tourism sector, but again, this is a very narrow range of support and the retail sector will certainly be feeling that they’ve missed out on this vital support.
From today, Stamp Duty nil rate band will increase from £125,000 to £500,000 until 31 March 2021. The average stamp duty saving will be £4,500 and means nearly 9 out of 10 people buying a primary residence this year will pay no stamp duty.
Activity in the housing market is a key indicator of a buoyant economy, as each house move creates a large amount of associated activity. In recent years, housing transactions have been hit by punitive levels of stamp duty, which as well as leading to lower than expected levels of stamp duty raised, has had a knock on effect on VAT revenues.
There will no doubt be pockets of people that will benefit from this incentive, but with rising unemployment, how many people will feel confident in moving house in this 6 month period?
eat out to help out
Throughout August, each Monday to Wednesday, an “Eat Out to Help Out Scheme” will give a 50% reduction (capped at £10 per head) for food and non-alcoholic drinks on sit down meals. Businesses can register from next Monday, claim weekly and get funds within 5 working days.
This again will give a small boost to the hospitality sector but only being 3 days per week, the benefit will be limited.
A generous £2 billion in green home improvement grants have been offered, helping to create jobs in the ‘green jobs’ industry. Whilst this may be a good first step, many key people believe this doesn’t go far enough, either for job creation or to meet environmental targets.
Depending on what sector you’re in, many business owners will be disappointed with today’s announcements because the Chancellor has offered support to only a narrow spectrum of companies and individuals. Today feels like a sticking plaster, and the Government are waiting to see what happens in the economy in the coming months. We look forward to seeing what the next Annual Budget in the Autumn will bring. We’d like to see an increase in capital allowances, more R&D tax relief, supply side stimulus including less regulation, and more support for Enterprise Investment Scheme.
The Government will have more time to see how the economy progresses and hopefully introduce more measures to help a wider range of individuals and businesses.
If you need more help or clarity on today’s announcements, then contact us.
The government figures from the COVID funding schemes show an interesting picture, read on to see the trends.