Diners to receive £10 meal discount as VAT slashed to rescue hospitality sector
Rishi Sunak yesterday handed out a VAT break for hotels and tourist attractions, a £10-a-head meal discount for restaurant diners and a stamp duty cut for home-buyers in a £30bn package to get Britain spending and stave off a feared wave of job losses as the country emerges from coronavirus.
But the chancellor was warned that he may only be postponing unemployment on a scale not seen since the 1930s, as experts questioned whether a £1,000 bonus for keeping on employees will be enough to stop businesses shedding staff when his furlough scheme ends in November.
And there were questions over whether taxes will have to rise to pay for the rescue package, with the Institute for Fiscal Studies (IFS) warning that measures announced since the outbreak began are likely to drive the state deficit above £300bn, “easily the highest as a share of public income since the Second World War”.
Treasury documents released alongside the chancellor’s emergency mini-Budget revealed that even before yesterday’s statement, the government had allocated almost £160bn to the national response to Covid-19 – including £10bn for the test and trace system and £15bn for PPE alone – while putting a further £123bn into loans, guarantees and deferred tax payments, some of which may never be recouped.
And IFS director Paul Johnson warned that the chancellor may have to add to these sums in his autumn Budget, which is currently set aside for investment plans to stimulate the ailing economy while action to put the public finances onto a sustainable footing has been put off by the chancellor into “the medium term”.
“More support may well need to be announced in the autumn when we know more about the path of the virus and of the economy, but this was another big package from the chancellor,” said Mr Johnson.
“It was focused on the right things, such as jobs for the young, but its size in part reflects how hard it is to target resources only where they are really needed.”
Addressing the House of Commons just four months after the March Budget in which he announced his first £30bn emergency package to combat coronavirus, Mr Sunak acknowledged that “hardship lies ahead” but said he was offering a “plan for jobs” to give workers and businesses the confidence to spend.
Despite widespread calls for the extension of furlough arrangements for sectors – like hospitality and entertainment – likely to be slowest to return to normal, the chancellor confirmed that his job retention scheme, currently paying up to £2,500 a month for staff who would otherwise be laid off, will be wound down from next month and cease on 31 October.
In a partial extension of the scheme’s support, he announced a £1,000 job retention bonus for every furloughed worker retained by a business on a wage of at least £520 a month to the end of January.
Other measures designed to protect jobs and stimulate economic activity included:
* A cut in the VAT rate on hospitality and tourism businesses from 20 per cent to 5 per cent until January next year.
* An Eat Out to Help Out scheme offering 50 per cent discounts of up to £10 a head for all diners in restaurants, cafes and pubs on Mondays, Tuesdays and Wednesdays throughout August.
* A hike to £500,000 in the threshold for stamp duty on domestic property sales in England and Northern Ireland, worth an average £4,600 to home-buyers and £15,000 on homes worth half a million pounds or more.
* A £2bn Kickstart scheme to fund six-month work placements for 16- to 24-year-olds at risk of long-term unemployment.
* Improved support for apprenticeships, with the bonus for firms taking on an under-25 doubled to £2,000 and a new £1,500 payment for apprentices over that age.
The chancellor also confirmed previously announced plans to put £3bn into green improvements to private households and public sector buildings and spend £111m on a programme of unpaid traineeships.
He told MPs that the UK would not be defined by the coronavirus crisis but by its response to it, telling them that his plan represented “an unambiguous choice to make this moment meaningful for our country in a way that transcends the frustration and loss of recent months ... to turn our national recovery into millions of stories of personal renewal”.
But Labour warned that Mr Sunak’s plans failed to match up to the scale of the challenge which Britain faces as it hauls the economy out of the deepest slump in activity ever recorded.
The Organisation for Economic Cooperation and Development (OECD) has warned that the UK’s unemployment rate could soar to 14.8 per cent, with job losses comparable to the 1930s.
Mr Sunak said the Office for Budget Responsibility and Bank of England are both projecting “significant job losses”, but insisted he would not accept unemployment as “an unavoidable outcome”.
Shadow chancellor Anneliese Dodds welcomed the support for the economy but stressed that more needs to be done to control the virus.
“The best the government can do to boost demand is to give consumers and workers the confidence and psychological security that they can go out to work, to shop and to socialise in safety,” she said.
And IFS deputy director Helen Miller questioned the decision to target food discounts at eat-in meals rather than takeaways, given the difficulties of maintaining social distancing inside restaurants.
“Only last week, the risk of virus transmission was deemed sufficiently serious that there was a ban on eating in restaurants; as it stands, the August discount scheme makes it cheaper relative to takeaways,” said Ms Miller. “Putting takeaways in scope would be more effective in increasing output without compromising social distancing.”
Frances O’Grady, general secretary of the TUC, said cash should have gone to low-paid workers rather than diners.
“There are 3.7 million key workers on less than £10 an hour,” she said. “They kept us going in this crisis. The chancellor should have given them a pay rise, not a dining out discount for the well-off.”
Confederation of British Industry director general Carolyn Fairbairn said that many otherwise viable firms are “facing maximum jeopardy”, with nearly 70 per cent running low on cash and three-quarters reporting low demand.
“The job retention bonus will help firms protect jobs,” she said. “But more immediate direct support for firms, from grants to further business rates relief, is still urgently needed.”
And there were doubts over whether the £1,000 job retention bonus will provide enough of an incentive for cash-strapped businesses to keep on staff.
Peter Cheese, chief executive at the Chartered Institute of Personnel and Development, said: “We are not convinced the Job Retention Bonus will provide sufficient incentive to encourage employers to bring workers back from furlough beyond those they would be planning to bring anyway.
“A simpler way of protecting jobs, and especially those of younger people, would be to extend the job retention scheme for key sectors such as hospitality and leisure beyond October. We believe this would be a more effective use of public funds rather than the job retention bonus.”
The deputy director of the National Institute for Economic and Social Research, Garry Young, warned that Mr Sunak’s interventions in the job market were “badly timed” and could spark a rapid increase in unemployment.
“The incentives offered to employers look too small to be effective,” said Mr Young. “Many employers have been topping up the pay of furloughed workers and are expected to bear more of the cost of the scheme from next month. They will be reluctant to do this now they know that the scheme won’t be extended.”
Tory former minister Caroline Nokes, now chair of the Commons Equalities Committee, said the chancellor’s package did little to help sectors with high proportions of female employees, like health, retail,
beauty and childcare.
And the general secretary of public sector union Unison, Dave Prentis, said there was “next to nothing for public services and the workers who’ve kept the country going through the last few difficult months”.
Liberal Democrat acting leader Ed Davey added: “Totally absent today was any measure to help the millions excluded from Covid support – like new starters, newly self-employed people and freelancers. They haven’t been helped at all so far and yet represent some of the most vulnerable groups. They must not be left behind.”