The Chancellor’s “Summer Economic Update”- gimmicks or sound economic policies?

On Wednesday 8th July 2020, the Chancellor Rishi Sunak made a speech entitled “Summer Economic Update” where he unveiled further Government supports and he unveiled the Government’s plan for jobs, which he described as the “Second phase in in the Government’s economic response to the crisis.”

Gimmicks or sound economic policies? We have to say that at first sight there are a lot of questions which will need to be answered in the coming weeks and many of the policies are more headline than substance.

Here are the highlights and we will update you on the details in the coming weeks as the Government publishes the specifics of the supports.

The “Plan for Jobs” PDF can be seen here.

The CJRS ends in October and the Chancellor looked to cushion expected redundancies with the announcement of a Job Retention Bonus (JRB). The new scheme will give employers £1,000 for each previously furloughed employee they retain and keep in employment until January 2021, as long as they are paid at least £520 a month. Further details of the scheme are expected later in July and there are a lot of unanswered questions.

For example if your partner is employed by your company on more than £520 a month and you have furloughed them then please don’t sack them just yet!!!!  On the face of it you might get a £1000 bonus! The devil is of course in the detail so we await with interest whether this little unexpected and questionable bonus will arrive for many clients!

Will the JRB assist in job retention? The jury is out on this but our gut feeling is no. For those businesses already looking to bring furloughed staff back this will be a welcome bonus but for those who are considering making staff redundant will £1000 really make a difference or simply postpone the inevitable?

Read more about the CJRS here.

In order to support people finding jobs, the Chancellor announced the Kickstart Scheme, which will provide £2 billion to support the creation of “high quality” six-month work placements for 16 to 24-year-olds on Universal Credit and at risk of long-term unemployment.

The Government will provide employers that offer the placements funding equivalent to 100 per cent of the relevant level of the National Minimum Wage (NMW) for 25 hours a week. It will also cover the associated Employer NICs and minimum automatic enrolment pension contributions.

The Kickstart scheme is definitely a welcome announcement as the sums involved are significant and let’s hope will encourage a number of employers to take on more employees.

Rishi Sunak also outlined additional measures, including funding for traineeships and employers that hire new apprentices, as well as funding for several careers and job-finding programmes.

• A £1,000 payment to employers in England who provide trainees with work experience; and
• A £2,000 payment to employers in England for each new apprentice they hire aged under 25 and £1,500 for each new apprentice they hire aged 25 and over. This will apply to hires made from 1 August 2020 to 31 January 2021.

Will the payments for new apprentices make a difference? Again the jury is out on this one. If you are taking on a new apprentice then this will be a bonus for you but if not are the sums involved attractive enough to invest the thousands of pounds necessary for an apprentice?

The Chancellor outlined a VAT rate cut for the Hospitality and Tourism sectors from 20 per cent to five per cent. The measures relate specifically to food and non-alcoholic drinks and to accommodation and admission to attractions, with further details expected to be published later.

The VAT rate change comes into effect on Wednesday 15 July 2020 and will be in place temporarily until 12 January 2021.

This will definitely be welcomed by the long suffering hospitality industry however logistically this will be problematical for many businesses where till systems might be unable to cope with the differing VAT rates now applicable. Also why is the end date the 12th January?- why not at least run it to the end of a month  to make the book-keeping easier!!! If you need help with your till system and accounting for the VAT changes please contact us .

The “Eat Out to Help Out” scheme will provide a discount of 50 per cent of up to £10 a person on eat-in meals, including non-alcoholic drinks, at participating establishments on Mondays, Tuesdays and Wednesdays for the month of August.

Restaurants, cafes and pubs can sign-up for the scheme on a new website on Monday 13 July 2020.

Why not every Monday night throughout August have your starter in one restaurant, move on to the next for your main course and end your night out with dessert at a third outlet. Spread the joy and save potentially £30 a person!

It will be interesting to see how much this boosts traditional restaurants on what historically are always the quietest days of the week. However this will definitely be great for fast food outlets!

There is a temporary cut in Stamp Duty Land Tax (SDLT) from 8 July by raising the nil-rate band from £125,000 to £500,000 until 31 March 2021. The Treasury estimates that, as a consequence, around nine in 10 people buying a main residence will pay no SDLT.

Further details can be found on SDLT changes here.

If you purchase a residential property between 8 July 2020 to 31 March 2021, you only start to pay SDLT on the amount that you pay for the property above £500,000. These rates apply whether you are buying your first home or have owned property before.

You can use the table to work out the SDLT due:

Property or lease premium or transfer value                               SDLT rate

• Up to £500,000                                                                                       Zero
• The next £425,000 (the portion from £500,001 to £925,000)           5%
• The next £575,000 (the portion from £925,001 to £1.5 million)      10%
• The remaining amount (the portion above £1.5 million)

From 8 July 2020 to 31 March 2021 the special rules for first time buyers are replaced by the reduced rates for additional properties.

Higher rates for additional properties

The 3% higher rate for purchases of additional dwellings applies on top of revised standard rates above for the period 8 July 2020 to 31 March 2021.

The following rates apply:

Property or lease premium or transfer value                               SDLT rate

• Up to £500,000                                                                                             3%
• The next £425,000 (the portion from £500,001 to £925,000)          8%
• The next £575,000 (the portion from £925,001 to £1.5 million)        13%
• The remaining amount (the portion above £1.5 million)                      15%

New leasehold sales and transfers

The nil rate band which applies to the ‘net present value’ of any rents payable for residential property is also increased to £500,000 from 8 July 2020 until 31 March 2021.

The following rates will apply:

Net Present Value of any Rent                 SDLT rate

• Up to £500,000                                   Zero
• Over £500,000                                    1%

Companies as well as individuals buying residential property worth less than £500,000 will also benefit from these changes, as will companies that buy residential property of any value where they meet the relief conditions from the corporate 15% SDLT charge.

On the 1 April 2021, the reduced rates shown in the above tables will revert to the rates of SDLT that were in place prior to 8 July 2020.

In conclusion there were a number of good well intentioned economic policies announced which no doubt will encourage employment. But there was also a number of policy announcements which are more to do with headlines than real substance and it is questionable whether some of the policies will have a positive impact on encouraging businesses to keep employees or grow their businesses.

Ultimately SME business owners have to look strategically at the long term future of their businesses. Surviving and thriving is key to SME business owners and job retention is a possible bi-product if and only if it makes good commercial sense.

Over the coming weeks the Government will issue further detailed guidance.  If you have any concerns then please contact us.

The content in this blog is correct as at 10/07/2020. See terms and conditions.