On Wednesday, Chancellor of the Exchequer Rishi Sunak will present a summer statement, also known as the ‘mini-budget’, which is expected to contain a raft of measures designed to help pull the British economy out of a slump caused by the coronavirus pandemic and subsequent lockdown measures.
With multiple firms announcing job cuts as they struggle to recover, many are predicting the announcements will focus on alleviating unemployment while also providing a boost to sectors hit particularly hard by the lockdown such as retail and hospitality.
There is also speculation that the mini-budget will be used as a chance to unveil longer-term investments to fulfil Tory campaign pledges made in last year’s election to “level up” the UK.
Jobs, jobs, jobs
One of the policies already unveiled by Sunak is a £111mln pledge to set up a scheme that will provide English firms with a £1,000 bonus for every trainee aged between 18-24 that they take on from September.
Trainees under the scheme, which will last between six weeks to six months, will also receive English, maths and CV writing training and workplace guidance.
Also thought to be under consideration is a cut to company national insurance contributions to help boost hiring activity, which will save firms around £2,400 per employee.
Tax cuts and stimulus vouchers
While part of the budget is focused on creating and retaining jobs, other announcements are expected to focus on stimulating economic activity and reduce the impact of the downturn.
It has been revealed previously that Sunak is considering a cut to Value Added Tax (VAT) from its current rate of 20% to support high street stores by lowering prices for shoppers.
Other measures include continued business rates exemptions for firms and grants for certain small businesses to reduce their outflows.
More help for the retail sector could come from another scheme reported to be under consideration which involves distributing vouchers worth potentially up to £500 to UK adults and £250 to children to spend in areas of the economy that have been hit hard by the pandemic.
The aim of this scheme, originally drawn up by the Resolution Foundation thinktank, is to encourage consumer spending in vulnerable areas of the economy and remove concerns that simply providing cash will see the funds disappear into savings accounts.
The housing market could also receive a lift under possible plans to introduce a six-month stamp duty ‘holiday’, which would see the property value level at which the tax is charged raised as high as £500,000 from its current level of £125,000.
Meanwhile, it has been revealed that the government will announce plans for a £2bn grant scheme in England to provide homeowners with vouchers worth up to £5,000 to make energy-saving home improvements such as adding insulation.
The scheme forms part of a wider £3bn plan to reduce the UK’s carbon emissions, with the government saying the grants could support more than 100,000 jobs.
Poorer households could receive up to £10,000 under the grant scheme, which also includes double glazing.
The mini-budget could also see more details about some of the government’s bailout packages for areas of the economy that have been struggling in the wake of the pandemic.
Some £1.6bn of rescue funding has already been announced for the UK’s beleaguered arts sector, which has been crippled by the forced closure of theatres and live music venues during the lockdown.
Meanwhile, there is also speculation that the UK’s rail operators could receive more assistance as they continue to struggle amid sharp declines in passenger numbers, with the industry having already received around £3.5bn from taxpayers.
While the proposed measures that could be presented in Wednesday’s statement have been greeted with plaudits by some analysts, there are concerns that all of the government support schemes will leave the Treasury facing a massive debt burden to pay for all of it.
Tom Selby, senior analyst at AJ Bell, said the UK was now facing an “eye-popping £300bn hole” in its finances as a result of the pandemic and that Sunak “will have to weigh-up his desire to kick-start the economy after its three-month slumber with the need to raise extra revenue via the tax system”.
“A strong recovery should boost tax receipts and lower the amount spent on benefits, automatically improving the Government’s balance sheet. Given we are now effectively getting two Budgets in 2020, the Chancellor may decide to frontload the ‘good news’ items on Wednesday as he attempts to kickstart the economy – and save the tax nasties for his Autumn Budget”, Selby said.
Meanwhile, Kallum Pickering, senior economist at Berenberg, said any policies announced on Wednesday should be “rolled out as soon as possible” in order to prevent slow stimulation of the economy, adding that there were “greater costs associated with doing too little rather than too much”.
Pickering also highlighted that the UK was currently “borrowing at a record pace”, with the Office of Budget Responsibility (OBR) estimating that public borrowing will hit 13.9% of gross domestic products, up from 2.1% last year and the highest level since 1945, when borrowing hit 15% of GDP.
“The cumulative current budget deficit has deteriorated so rapidly this year that forthcoming data will likely show that by mid-year it exceeded the whole of 2009, which was the worst year for the public finances during the financial crisis”, the economist said, although he said while the additional spending measures may add to the near-term debt burden, they “may benefit the long-run fiscal outlook by supporting the economic recovery”.
“As the aggressive fiscal measures help to preserve the economy’s underlying potential and long-run capacity to generate tax revenues, the risks from the massive temporary debt surge are lower than they may initially appear”, Pickering said.