However you slice it, vouchers will be hard to swallow for nervy diners
Tax and national insurance support for the retail and hospitality sectors surely offer a better use of £30bn
It’s scarcely any wonder that polls say Rishi Sunak, the Chancellor, is by far the most popular member of this Government: as a strategy for winning friends, “free money for all” must be up there with the best of them. Sunak – unbelievably still less than five months in the job – has had a good crisis though.
He stepped up when it mattered on the furlough scheme and showed his willingness to listen with his later support for the self-employed. Companies also have reason to thank him for a plethora of tax holidays on VAT and business rates.
But as the UK moves from the immediate shock to an attempted recovery and the Chancellor takes centre stage again tomorrow, he needs to be careful with his largesse. In particular, he should treat the calls for a universal voucher scheme from the Resolution Foundation with caution.
The think tank wants Sunak to spend £30bn on high street vouchers, worth £500 per adult and £250 per child, to be targeted at face-to-face retail, leisure, hospitality and the arts.
The vouchers would be time-limited for 12 months to support spending. The argument goes that the vouchers would be more effective than simple cash transfers to all, as much of the money would simply be saved in the current jobs climate.
It would also be more targeted than a VAT cut for the wider economy – as employed by Alistair Darling in 2008 – because retail and hospitality firms have borne the impact of the pandemic disproportionately. The voucher scheme could also be suspended in the event of a second wave and further lockdowns.
The idea isn’t necessarily targeted “helicopter money”, as that comes directly from the central bank. It’s more akin to a targeted “use it or lose it” tax cut lasting up to a year.
Effectively, after unprecedented state support for incomes across the wider economy via the furlough scheme – at an estimated cost of £60bn – the demand is for half as much again on state support for consumer spending instead.
A handful of other countries have tried such schemes on a smaller scale, and the evidence has been mixed.
In China, for example, where retail sales are still in negative territory, a study of 42 cities where almost £1bn was handed out found the scheme’s “multiplier effect” varied wildly.
Use of the vouchers, which in many cases could only be applied when shoppers spent a set amount of their own money, triggered varying amounts of additional expenditure.
In some cases, the multiplier was as high as nine or 10; in other places less than three. Rural, elderly nonsmartphone users were more likely to miss out with vouchers designed to be spent in the city centres, as well as those living in the suburbs.
There were also reports that Chinese shoppers were simply using the vouchers to buy essentials like cooking oil and rice, which they would have paid cash for anyway, undermining the intention of sectorspecific stimulus.
That’s why it is strange Resolution’s report says that “despite the food retail sector performing strongly during the crisis, it would make sense to include that sector in order to allow people to buy essentials with the vouchers too”.
Surely it makes no sense at all to offer state spending subsidies for essentials, if you are trying to save bricks-and-mortar non-food retailers and restaurants? With a jobs crisis just around the corner for millions of people, that £500 voucher might be judged as a handy 12-month insurance policy to help with the food shopping and just stored away for a rainy day.
For those of us who have managed to cling on to our jobs – and have actually built up a glut of savings due to the lockdown – there is also the risk of preventing spending that would have happened anyway.
The money one might have spent is replaced by the voucher, creating a deadweight loss and an inefficient use of resources; there is no reason why the Government should be stepping in to buy the relative “winners” of this crisis brand-new laptops and iPads with vouchers. With retailers in particular, when the share of spending online has surged above 30pc for the first time ever and businesses are adapting rapidly to the new world, there is something Canute-like about a tax break frog-marching people back into city centres.
The bigger issue with the face-toface voucher scheme – apart from the logistics of getting it off the ground in short order – may well be consumer confidence.
For example, a YouGov poll for The
Daily Telegraph last month found that over half of the most at risk 65-yearolds felt uncomfortable with visiting restaurants, at 54pc.
Is this group, the most at risk from Covid-19, ready to take their chances on a return to the high street?
For all the weekend hype about young people crowding back into pubs after being locked down for months, the over-65s are the fastest growing consumer group in the county, thanks to demographics as well as favourable pension policies like the triple lock.
This group outspends the under-30s and splashes more of its money on leisure and recreation, according to the statistics. But will they necessarily want to go back before a vaccine is discovered? Taiwan, where vouchers have been used, has been a textbook case in how to handle a pandemic and this has resulted in just seven deaths.
Austria – another voucher user in Vienna – has also been on the ball with strict and early lockdowns, and reopened shops and restaurants in May. The UK’s halting response on the other hand hardly inspires confidence.
The Chancellor is leaning against a sector-specific extension of the furlough scheme beyond October, for reasons such as the confusion over supply chains.
But given Sunak’s focus this week is “jobs, jobs, jobs” then sums like £30bn might be better spent on supporting retailers and restaurateurs by slashing employers’ national insurance and encouraging them to hang on to their staff for as long as they can by cutting costs. An extension to business rates holidays – excluding the big grocers, of course – could be supplemented by a specifically targeted VAT cut, for which the UK hospitality sector has called. The reality, though, is that while social distancing is in place, cutting the capacity of many bars and restaurants by half, the issue is supply as well as demand. No amount of vouchers or other measures are really going to fix it.
The Chancellor is a smart cookie with sound instincts: they should be telling him that the best way of keeping people in jobs is to cut the cost of employing them.
People in England were able to return to pubs and restaurants over the weekend, including Gaucho in Richmond Upon Thames, pictured