Has Rishi got it right to rescue economy?
Businesses are being offered a £1,000 bonus for each employee they retain until January, as a way of preventing mass unemployment when the furlough programme ends in October.
This will help ease the cost of employees returning to work. However, I think the impact will be limited as employers will not keep people if they aren’t confident there is demand for their services just to get a £1,000 bonus.
There was news of support for the hospitality and tourism industries with a cut in VAT to 5 per cent, but it’s interesting there’s nothing there for manufacturing or retail, which are also hard-hit.
It is unlikely to be passed on to the consumer, but will help with the additional costs caused by reduced capacity and social distancing.
Behind the money-off Eat Out to Help Out vouchers you can see the Chancellor is hoping to get people going back to pub food and restaurants.
Offering Monday to Wednesday dining at up to half price, it is designed to encourage people to get out and about (when they can) and spend again.
The people most likely to benefit are the most risk-averse groups – those in their late 40s and 50s and the middle classes, who are wary of visiting restaurants and pubs. Will it be enough?
STAMP DUTY
Cutting stamp duty will put more money into the economy and help confidence in the housing sector, which is so important to the psyche of UK spending.
It has limited impact on first-time buyers but should help those wishing to move and those who wish to downsize.
History suggests it will inflate house prices in the short term as people rush to beat the March 2021 deadline, but risks a housing slump in the spring of next year and the return of negative equity.
The Chancellor will be hoping more people will press on and move home, and in doing so spend money on redecorating and furniture, boosting the economy in that way.
It is a fairly blunt tool and much of the money will go into the record savings being enjoyed by those still in full employment.
JOB CREATION
This was interesting – the Chancellor has previously said he wants to create “jobs for everyone”, but this was focused on young people and again there is a time limit on the support.
Are companies in a position to know what their outputs will look like next year in order to plan to take on staff?
Creating jobs for the hardest-hit group, including school and university leavers, is to be welcomed.
There was, however, little there for those in their 40s and 50s losing their jobs as furlough eases, some of whom will be looking for jobs for the first time in many years.
IN SUMMARY
The Chancellor said we were moving into phase two – job creation – and has done a few of the things needed using traditional approaches to stimulate an economy in recession.
But this is not a traditional recession and I don’t think the ideas were particularly inspiring in terms of how the government is looking to set the foundations for jobs in the post Covid-19 economy we want.
Only £2 billion of the £30 billion package was for the environment and the levelling-up relied on infrastructure building only. This was a crucial short-term confidence boost, but it was a pleasant aperitif and we must wait until the autumn for the main course.