Summer Statement: Peter’s Economic Update

The Chancellor’s announcements in his Summer Statement on Wednesday on the follow up provisions for the Coronavirus Business Support Scheme have been received with varying degrees of enthusiasm, with concerns over the encouragement of social interaction and possible misdirection of taxpayer largesse possibly outweighing support for the initiatives. It is not the purpose of this update to comment on such issues, but we will (try to) concentrate on the technicalities.

Job Retention Bonus

This scheme is designed to soften the blow of the termination of the Coronavirus Job Retention (Furlough) Scheme which spearheaded the Government’s drive to protect jobs by funding the majority of wages for people whose jobs had disappeared owing to the pandemic. The Chancellor had previously stressed, when introducing the “flexible furlough” scheme from 1 July, that this type of support would finish on 31 October. There had been speculation that it might be continued in a more sector-specific form in order to assist industries which have been hit hardest in the crisis. However he has stuck to this position, and come up with a new financial incentive for employers to keep staff on after 31 October.

This will involve the payment to businesses of a grant of £1,000 for each staff member who has been furloughed at any time and been the subject of a successful furlough grant claim, and who is still employed at 31 January 2021 having been continuously employed since the qualifying date for the scheme in March of this year. Therefore this will include people who may only have been furloughed for the first three week qualifying period but have been back to work since the middle of April, as well as those who remain on furlough at 31 October. On the face of it this appears to be a real “bonus” for some businesses who are back to normal operation after a temporary hiatus, who will receive £1,000 for employees for whom there is no prospect of being laid off. Presumably the reason for this is that a restriction of the bonus for those employees who remain on furlough after the announcement would have been an encouragement to employers not to “unfurlough” people during that period. Whatever the reason, it would appear that the Government have found it impossible to target the funding better.

It will not be possible for staff to be kept at work on very low wages as one of the requirements is that qualifying employees must be paid on average at least £520 per month, which is the national insurance lower limit, for the period from the beginning of November to the end of January. Grants will be payable in February and more details of the scheme will be announced later this month.

Reduction in Vat rate for the Hospitality Sector

The Chancellor announced that the rate of Vat on food and non-alcoholic drinks served in restaurants, bars, cafes, pubs and other similar premises will be temporarily reduced from 20% to 5% from 15 July to 12 January 2021. Clearly there has been little notice of this change, so businesses benefitting from it have little time to instigate changes to their accounting systems and possibly their pricing. The Government has promised further details on this initiative before next Wednesday, but businesses in this sector do not normally price on a Vat-exclusive basis so will be able to take the benefit of the reduction and not pass it on to their customers by maintaining their existing price lists. There may be a gradual overall reduction in prices as the economic effect of the reduction spreads through the industry, but that is likely to take some time.

Eat Out to Help Out

If consumers may not feel the full benefit of the Vat reduction, this initiative is precisely targeted at those who need an incentive to get back into the indoor refreshment market. For one month only (August) this scheme, which could easily be mistaken for a “” offer (other schemes are available), promises half price food and (non-alcoholic) drinks with the discount limited to £10 per person. The offer applies to meals taken on Mondays, Tuesdays and Wednesdays in August (and will possibly not be available to be used in conjunction with any other offer?). It is not yet completely clear how the scheme will be administered, but it will involve claims being made to the Government by businesses for the discounts allowed on eligible meals.

Stamp Duty Land Tax Reduction

The nil rate band for SDLT on residential property transactions in England has been extended from £125,000 to £500,000 for completions between 8 July and 31 March 2021. It is hoped that this will provide a boost to the property market, and the related economic activity, and it will also no doubt have an effect on property pricing as buyers and sellers react to the reduction in transaction costs.

Incentives for Employment of Young People

There are three new schemes aimed at encouraging employers to take on and train younger people.

  • Kick Start Scheme – £2bn has been allocated to a fund to pay the wages of 16-24 year olds who are taken on for work experience. The grants will cover the minimum wage plus the related employers national insurance and pension payments for 6 months at 25 hours per week.
  • There will be £1,000 grants available to employers who take on 16-24 year olds on traineeships, and the eligibility criteria will be extended.
  • A new grant to fund apprenticeships will be available from 1 August to 31 January amounting to £2,000 for under 25s and £1,500 for over 25s, which is on top of the £1,000 already payable for 16-18 year olds.

Author: Peter Hedgethorne, Director, Plus Accounting

Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.

Date Published: 10 July 2020

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