By Sarah Coles, Personal Finance Analyst, Hargreaves Lansdown
Rishi Sunak may not have thrown the entire kitchen sink at the impending economic and jobs crisis, but he’s lobbed a fair amount of kitchenware at it. The question remains, how on earth will all this be paid for – and when are we going to get the bill?
Employment was always going to be the top priority – with more than nine million people set to drop out of the furlough scheme and into a period of horrible uncertainty. The jobs retention bonus was an interesting flourish to add to the measures already announced. It’s set to cost up to £9.4bn, but in the grand scheme of things, it’ll be a drop in the ocean for firms with major wage bills in the leisure industry.
Sunak will be hoping that the VAT cut and the ‘eat out to help out’ vouchers won’t just give the hospitality sector a temporary boost, but will help tempt people who were teetering on the edge of going out – and get them back in the swing of things permanently. The success of the scheme will depend on how hard we find it to resist a bargain, and whether businesses can remain profitable given social distancing requirements.
The stamp duty holiday will be a welcome boost for buyers, and will save them a collective £3.8bn in tax. Unfortunately, it’s not going to make a vast difference if your mortgage lender has tightened lending criteria and demanded a much bigger deposit. At £4,500, the average saving may not be enough to bridge the gap.
All of these measures will cost money – on top of the eye-watering sums already spent – and eventually, the Treasury is going to need to start raising revenue. It means that as early as the Autumn Budget we could see proposals and consultations emerge that promise more pain ahead.
Nathan Long, senior analyst, Hargreaves Lansdown discusses the pension and investment reforms that remain on the Chancellor’s to-do list
Many people have been calling time on the triple lock for years, but reducing the potency of the State Pension increase remains too politically unpalatable, at least for now. I don’t expect this to be the last we hear of it though. We’re expecting earnings to fall this autumn, and then recover slowly into 2021. The worry is that the triple lock would give state pensioners a huge pay rise at a time when the working population will likely be still clawing their way back from the economic effects of COVID-19.
The Chancellor was quiet on the topic of changes to pension tax relief despite rumours that it was in the crosshairs. Savers still need to navigate the Autumn Budget, but whatever happens, one thing is clear: things aren’t going to become more generous for higher rate tax payers in future. For anyone paying tax at 40% or 45%, bringing forward planned saving could be worthwhile.
Fears of a one-off raid on wealth to pay for the cost of the COVID-19 bailout did not come to pass either – although a review of all taxes on wealth including Capital Gains Tax, Inheritance Tax, Stamp Duty and Council Tax may still surface in the autumn. We’d like a system which incentivises people to invest well and for the long term and encourages wealth to trickle between generations. Any one off, knee-jerk raid on wealth would be hugely damaging to the fragile confidence of savers and investors.
- To help the hospitality sector (which employs over two million people, of which 1.4 million have been furloughed) VAT will be cut from 20% to 5% from next Wednesday on eat in or hot takeaway food and non-alcoholic drinks, accommodation and attractions like cinemas and theme parks until January 12th. This is set to cost £4.1bn.
- In August everyone in the country will get an ‘Eat Out To Help Out’ discount. They can eat at any participating restaurant, from Mon-Wed, and get 50% off – up to £10 per head for everyone including children. Businesses will be able to claim the money back from the government, and it’s expected to cost half a billion pounds.
- A £2bn green homes grant will provide vouchers of up to £5,000 for energy-saving home improvements (£10,000 for those on the lowest incomes). It will cover up to two-thirds of the cost (100% for those on low incomes) and include double glazing.
- There will be a temporary stamp duty holiday from today until 31 March next year so the first £500,000 of all property sales is exempt. The threshold is currently £125,000 (aside from first-time buyers for whom it is £300,000). This will save people an average of £4,500, and nine in ten will pay no stamp duty.
Jobs and business
- Jobs retention bonus, for any business bringing someone back who was furloughed and continuously employing them until January. They will receive £1,000 (for employees earning at least £520 a month).
- £2bn kickstart scheme to pay for six-month work placements of at least 25 hours a week on minimum wage for people on Universal Credit aged between 16 and 24. Employers can top that up. The work should be accompanied with meaningful training and help getting a permanent job. There’s no cap on the number of places available.
- 30,000 new traineeships, paying employers £1,000 for each place they offer.
- Funding for level 2 and 3 courses to get 18 and 19 year olds into work.
- Doubling the number of jobcentre work coaches and recruiting expert mentors, £32m for the National Careers Service, so it can recruit more careers advisers and £17m for sector-based ‘work academy’ placements.
- For the next six months, the government will pay employers to create new apprenticeships, with a bonus of £2,000 per apprentice for young people, and £1,500 for those aged 25 and over.
- Infrastructure spending – previously announced by the Prime Minister, accelerating £5bn of spending.
- The energy saving vouchers are part of £3bn of green spending which includes £1bn to improve the energy efficiency of public buildings.
- £1.6bn in grants and loans for arts and heritage.