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

The Daily Telegraph - Business - - Business Comment - RUS­SELL LYNCH

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

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