Summer Economic Update

Rishi Sunak Summer Economic Update

On Wednesday July 8th the Chancellor delivered what should have been his second Budget. However, it was shortened to a Summer Economic Update, but with some key announcements. Here is our take-away from it (some pun intended).

Furlough Payments

He confirmed that the Corona Virus Job Retention Scheme (ie furlough payments) will finish in October 2020. He said that it can’t continue forever. Some employers are just using this to keep paying employees who won’t have a job to go back to. Which I can understand his point of view. However, there is uncertainty on whether there will be a second wave come Autumn/Winter. I think it is too early to conclude the scheme personally. I would have liked to see the flexible furlough scheme extended until Spring 2021.

He announced a bonus for employers who have had employees on furlough who bring them back into employment. This is £1,000 per employee brought back. To qualify for this bonus, the employee must have been furloughed in at least one pay period. They must be brought back and kept on until at least January 2021, on an average of at least £520 per month. This is definitely a worthy scheme, however I have heard initial concerns from employees who worked through the pandemic. They are concerned that they will be made redundant, whilst their furloughed colleagues are kept on. So as the company would be eligible for the £1,000 bonus from the government for each one kept on. Good checks on redundancy processes followed from a legal point of view may help alleviate some of these concerns.

New Jobs Scheme

On the theme of jobs support, creation and protection he announced three new government supported schemes. This is to get people into work and be trained up.

First off we have the kick start scheme. This aims to get 16-25 year olds who have been identified at risk of long term unemployment into work. They will be those who have a Job Centre Plus work coach. A lot of these people who have a work coach are on sickness related benefits, possibly have a long term condition. I think we have to be careful not to penalise people with long term chronic conditions for not taking up job placements that they are unable to take due to their health condition.

The kick start scheme will reimburse employers for taking on one of these people with a work coach. For a six month contract of 25 hours per week, the employer will be reimbursed at the minimum wage for the relevant age of the person they take on. The employer can take them on for more hours per week, and pay a higher hourly rate if they choose to. Early indications are that the government will only reimburse the minimum wage at 25 hours a week. If you take on a 21 year old, for 25 hours per week, you will be reimbursed by £205 a week for those 6 months. They have also said overheads will be reimbursed. There is not yet any indication of what that entails if anything, other than employers NI and Employers Pension.

The next two are similar, but slightly different. They are, taking on trainees and taking on apprentices. If an employer takes on a trainee member of staff they will be eligible for a bonus of £1,000. The government is putting in funding to make more spaces on level 2 and 3 courses accordingly. If they take on staff as an apprentice, they will be eligible for a payment of £2,000 for apprenticed aged 16-25, or £1,500 for creating an apprentice role for an employee over 25 years old.

These schemes are good, but I do worry that the kick start scheme may just end in a lot of young people being made unemployed all at the same time. After the six month period has finished they may not be kept on. At least it is a lot better than the old work-fare system that the UK had. Where those on unemployment benefits were forced to take on six month job roles basically unpaid (just received their unemployment benefit) or risk loosing their benefits.

Stamp Duty

To boost the home building and construction industry there came another announcement. Aiming to help the property market, Rishi announced an immediate change to stamp duty. Previously the threshold at which you start paying stamp duty on buying a home was £125,000. This has been temporarily increased to a threshold of £500,000 until 31st March 2021. This means the majority of people buying a home in that time will not have to pay any stamp duty at all.

Hospitality

Finally there was some good news for the hospitality sector. VAT on eat in food and hot take-away food (there is the reference for that pun) will be changed short term. The rate is normally 20% standard rate and has been re-classified to 5% reduced rate VAT from Wednesday 15th July 2020. The change will last until January 12th 2021. This is 26 weeks from the start of the scheme. Which I guess made sense to them, but for businesses, and us accountants, it isn’t the most sensible of end date.

Finally he said he was going to introduce a scheme that has never been tried in the UK before. I must admit at this point I got my hopes up that the rumours of a voucher of £500 for each adult and £250 for each child was true, and that he was about to announce it. Unfortunately, my hopes were soon dashed when he instead announced a “eat out to help out” scheme, with a much lower price tag!

Restaurants and pubs that serve food will soon be able to apply to join the scheme, which will take place in August 2020. This will give people the opportunity to eat out with a 50% discount on the meal Monday-Wednesday during August. This is limited to £10 per head each time you go. So for a family of 4, any bill above £80, the discount would be capped at £40 total. He also said that businesses would be able to reclaim the money for these vouchers easily, and the money would be in their bank accounts within 5 working days from claiming.

So that’s it for the Summer Economic Update. No firm news on a date for the full Autumn budget, but likely to be late October 2020.

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