Sunak mulls over giving fiscal relief to ailing British businesses and support jobs

Summary

• Chancellor to announce an economic statement with stimulus worth £800 million on the afternoon of Wednesday, 8 July 2020
• Lots of options on cards like £500 & £250 vouchers to spend in Covid-hit firms, job support measures, increase the property tax threshold, cut VAT for struggling hospitality firms, etc.
• Cultural institutions get a government aid worth £1.6 billion
• New schemes for job training and increasing the number of work coaches rolled out

All eyes are on Rishi Sunak, the UK Treasury Chancellor, as he is all set to announce new fiscal stimulus measures this week to provide a new boost to the economy and support the struggling sectors in the country.

Sunak is presently the most popular member of the British Government, probably even more than the Prime Minister Boris Johnson himself. He had gained maximum applaud for introducing the furlough scheme to support more than 9 million jobs in the British economy, after the lockdown was imposed.

However, it goes without saying that the two main worries of the Treasury still remain to save jobs and to support businesses. The recent results of a survey by Make UK, a leading national manufacturing industry association, revealed that close to half of the manufacturers in the country are going to lay off staff in the coming six months, i.e. between July and December 2020. Further, the Center for Economic Research has predicted that the unemployment levels in Britain will easily surpass more than 3.3 million by the end of this year 2020.

The UK economy shrank by a record 20.4 percent during April 2020 and the EY Item Club predicts it to further contract by 15 percent during the second quarter of 2020.

Government estimated for Gross Domestic Product (GDP), monthly

(Source: Office for National Statistics, UK)

So, what is on Sunak’s list?

According to government sources, the main measures that are expected to be announced by the UK Treasury on 8 July are as follows:

• Tax relief to home-buyers: The property tax threshold limit is likely to be moved up to £0.5 million (from £0.125 million at present). This will push up housing demand as most home buyers will not have to pay any stamp duty. This move could be offered for up to a maximum period of one year.
• VAT cut: A temporary reduction in the Value Added Tax (VAT) for the hospitality sector, including cafes, pubs, and restaurants, is on the cards. This move is expected to support 2.4 million people employed by the sector. During the month of April 2020, the first complete month of the lockdown induced to contain corona infections in the UK, economy activity in the hospitality sector dropped by almost 90 percent, according to industry sources. The existing rate of VAT is 20 per cent on most goods and services in the nation, including hospitality.
• Targeted consumption vouchers: Providing vouchers to all adults in the denomination of £500 to all adults and £250 to all kids is being considered, for spending in the worst hit sectors of the British economy. Such vouchers were also used recently in China, Malta and Taiwan to speed up the post-Covid recovery. This idea was suggested by Resolution Foundation, UK’s leading thinktank, which opined that such voucher will bring about a targeted recovery.
• Career Services: Additionally, an investment of £32 million could also be made in the UK National Careers Service, so that unemployed people can get a suitable job advice to gain back a job.

Government’s furlough scheme to end: In the meantime, Boris Johnson clearly said on 1 July 2020 that the ongoing furlough scheme will have to come to an end, as it is neither sustainable not good for the economy in the long-run. It was provided as a short-term measure to support millions of jobs under threat as firms were going red, with a sharp drop in demand for goods and services, due to the advent of the coronavirus pandemic. The scheme started in March 2020 and is slated to end during the month of October 2020. The total money used up by the scheme till the end of June 2020 was more than £25 billion.

Protecting British galleries, museums and theaters: To kickstart yet another struggling sector in Britain, namely the arts & culture sector, the government has decided to give it an aid worth £1.6 billion.

This was announced by Oliver Dowden, the country’s cultural secretary, on 6 July 2020, who added that this money will reach the most-deserving companies in the British arts & culture space. Cinema halls, musical venues, heritage sites, and museums had to be shut down for more that three months across the nation, due to the lockdown imposed by the government.

The funding will be distributed as grants and affordable loans. The cultural institutions have welcomed this government decision, and its detailed guidance is expected to be released shortly. The performing arts sector was reopened on 4 July 2020, in the third and last phase of removing lockdown restrictions, but is struggling to put up live performances, given the social distancing measures.

Training Scheme: Incidentally, the UK Treasury has come up with a new training scheme on 5 July 2020, as it understands the need for training those really young employees who have lost their jobs recently, so that they can be made employable again.

It is a £111 million plan which aims to increase the traineeships being provided across Britain by three-fold. The scheme plans to offer £1,000 each as the training cost to firms for every job-trainee that they hire between the age-group of 16 and 24.

Work Coaches: The Treasury released £800 million on 5 July 2020 towards doubling the number of work coaches across the national job centers. At present, the total number of work coaches in Britain is 13,500.

So finally, with demand unlikely to shoot-up on its own for the coming few months, to say the least, Rishi Sunak is presented with the daunting task of providing yet another set of support measures to kick-start the British economy. While there are many suggestions floating around from cutting VAT to providing targeted vouchers, Sunak has to do his math right before promising anything new, given that the British public debt levels are already at an all-time high level.