Bonanza for the Hospitality & Housebuilding Sector in Chancellor’s Summer Statement

Summary

• UK government has rolled out ‘Eat Out to Help Out’ discount scheme to incentivise people to eat out and encourage the already battered hospitality sector
• The government has also announced tax relief in the form of a VAT cut from 20 per cent to 5 per cent for the hospitality sector
• The Chancellor has announced a temporary holiday on stamp duty with immediate effect until 31 March 2021

The Chancellor has announced a comprehensive three-phase plan to support the economy. In the first phase, the government has announced a £160 billion support package for the essential public services in the UK for providing employment to around 12 million people.

In the second phase, the investment would be utilised on the skill development of young people and job creation. The employers will receive £1,000 for each furloughed employee who is called back to work.

The government has also announced tax relief in the form of a VAT cut from 20 per cent to 5 per cent for the hospitality sector and rolled out ‘Eat Out to Help Out’ discount scheme to incentivise people to eat out and encourage the already battered hospitality sector due to the travel restrictions imposed during the lockdown. As a matter of fact, 80 per cent of the firms in the hospitality sector stopped trading, and nearly 1.4 million workforces have been furloughed.

The British government’s new ‘Eat Out to Help Out discount scheme’ will provide a 50 per cent waiver for sit-down meals in eateries, and pubs to encourage people to make a safe return to eating outside. In addition, the British government wants to boost consumer sentiment in terms of buying, selling or renovating their houses. Therefore, on the first £500,000 of all property sales in England and Northern Ireland, the Chancellor has announced a temporary holiday on stamp duty with immediate effect until 31 March 2021. This implies that buying a property of £500,000 or more could save you a lot of money, that you would have otherwise paid in the form of taxes. This move is likely to support jobs and drive growth across the property and the housebuilding sectors.

Do read: UK’s Pubs & Restaurants May Have to Make Check-Ins Mandatory for Customers

Economy not in pink of health

During the first quarter (period ended March 2020), the Gross Domestic Product (GDP) of UK fell by 2.2 per cent in terms of volume, according to Office of National Statistics (ONS). This can be attributed to the economic impact caused by the novel coronavirus and the measures taken by the government to curb the spread of this deadly pandemic.

The services output fell by a record 2.3 per cent during the three-month period ending March as the services, production and construction sectors provided a negative contribution to growth in the output approach to GDP. For the three-month period ended April 2020, the unemployment rate in the UK was up by 0.1 percentage points to 3.9 per cent in comparison to the previous year.

Due to economic impact of the novel coronavirus and the apparent risk of a tidal wave of unemployment, Rishi Sunak, the Chancellor of the Exchequer, took to the despatch-box in a mini- budget to announce his plans for offering support to the struggling sectors on Wednesday, i.e. 8 July 2020.

While it may look like a budget, but it was just a summer statement which complements the earlier spring budget. The Chancellor reiterated the extent of the economic crisis. The production sector output plunged by 9.5 per cent in the three-month period ended in April 2020. The output from the construction and the services sectors was down by 18.2 per cent and 9.9 per cent respectively, during the three months to April 2020. In addition, millions of people have been furloughed.

According to the one of Britain’s top economics consulting firm, Centre for Economic and Business Research (CEBR), the average price of a house in the UK is likely to fall by around 13 per cent in the present scenario.

Due to the economic fallout in the wake of the coronavirus outbreak, the Bank of England (BoE) has also predicted a slump of up to 16 per cent in housing prices across the UK for the current year. As the lockdown has been lifted the release of the pent-up demand is expected, and the property prices are expected to rise in the long-term horizon. In addition, UK’s housebuilders are lobbying for a dedicated emergency fund for the sector with the government. The latest exemption in VAT and a holiday on stamp duty would act as a growth catalyst for the housebuilders.

Do read: Covid-19 Impact-UK Housebuilders Seek Dedicated Liquidity Support from The Government

Let us have a glance through different stocks which are likely to get impacted due to the announcements-

• J D Wetherspoon Plc (LON:JDW) is into the business of food and drinks, facilitating through its chain of pubs across the UK. In line with the government's guidance, most of the pubs in UK reopened from 4 July onwards. The company has raised additional funds through the CLBILS (Coronavirus Large Business Interruption scheme). In the pre-crisis era (H1 FY20), JDW’s revenue was up by 5 per cent on like-for-like basis to GBP 933 million. The company is likely to benefit from the ‘Eat Out to Help Out discount scheme’. The stock created a bottom of GBX 559.50 on 19 March as people were asked to remain indoors and stay away from public places. Since then, the stock has generated a price return of 74.35 per cent.

• A leading housebuilder of UK, Persimmon Plc (LON:PSN), has reopened its sales offices in England from mid of May onwards. The company has introduced new social distancing and additional hygiene measures in place, in lines with the advisory issued by the British Government. Construction sites in England and Wales have recommenced operations since the last week of April. Nearly two-third of the production capacity has been restored on the construction sites. The reduction in VAT from 20 per cent to 5 per cent could encourage people to buy homes as they can even avail the benefit of zero stamp duty on the purchase of up to £500,000. The stock created a bottom of GBX 1,534.50 on 19 March due to the economic impact of the deadly pandemic. Since then, the stock has generated a price return of 58.55 per cent.

The mini-budget announced by the Chancellor of the Exchequer is likely to provide the much-needed stimulus for the hard-hit sectors like Hospitality & Housebuilding. Tax cuts, discount schemes, would not only bolster the struggling businesses but would also boost the confidence in consumers that have fizzled out due to the economic fallout caused by the deadly pandemic.