Summer statement – what does it mean?

Summer statement – what does it mean?
  • Investment Insight
  • 2 minute read

A focus on jobs

The chancellor this week revealed additional government spending measures designed to boost employment opportunities in the UK as the economy reopens. The headline policy is a £1,000 bonus to firms for each worker they re-hire continuously  until 2021.

This bonus will be a welcome support for those firms for whom it makes financial sense to bring back workers once the Job Retention Scheme ends in October. However, it is unlikely to change the cost-benefit analysis for those businesses currently planning to let workers go, meaning that it is still likely that unemployment begins to rise from August, when firms are asked to begin to contribute to employee salary and benefit costs.
Some segments of the economy remain closed, including personal care, with the exception of hair dressers, and many indoor entertainments but the Job Retention Scheme is not currently to be extended for these sectors, nor is support for the self-employed.

The Treasury also announced c.£4bn in spending to support young people into work via the Kickstarter scheme, which covers the cost of firms offering six month apprenticeships to 18-24 year olds. The Government has a mixed track record on delivering apprenticeships and it may be difficult to deliver 350,000 apprenticeships via the private sector alone.

Eating out to help out

As well as broader support for employment, the Chancellor revealed targeted plans designed to support the hospitality and entertainment sector. The rate of Value Added Tax (VAT) has been cut from 20% to 5% on food, accommodation and attractions in a bid to encourage consumption. In the month of August, the Treasury will also subsidise meals consumed in restaurants, offering 50% off meals up to £20 at participating venues on Mondays to Wednesdays. Disappointingly for publicans, alcoholic beverages are excluded from both measures. While these measures will be welcome to the hospitality industry, which was already under pressure before the pandemic, the efficacy of UK health policy is likely to be a bigger driver of consumer footfall than price cuts. Apple mobility data, which tracks the number of route requests, suggests that, while the UK is engaging in more travel, the pace of recovery has slowed since early June.

Building up Britain

As well as measures targeting the UK’s blighted services sector, the statement included measures to promote investment spending, including c.£4bn of new investment spending to include subsidies for home insulation and an eight month stamp duty holiday for homes under £500,000 in England and Northern Ireland. This latter measure is expected to have a meaningful impact on the property market, helping free up transactions and UK housebuilding stocks have already gained on the back of it.

Cheque please

In total, around £25bn of new spending was announced in this statement, taking the cost of total government support measures announced so far to around £200bn. With the UK deficit expected to reach £360bn in 2020, twice the size reached during the Global Financial Crisis, attention will soon turn to funding this expenditure. If coronavirus and consumer confidence allows, we anticipate changes in tax policy in the autumn, in a bid to address the deficit. Depending on how it is delivered, this could be a drag on economic activity.

Investment implications

While the initial shock of the pandemic is behind us, the health and economic crisis caused by the coronavirus is ongoing. The efficacy of health policy in containing the virus remains the main factor determining the path of the economy, though huge government and central bank intervention has limited the extent of the immediate negative impact on the UK. With a vaccine or effective therapy unlikely to be delivered in 2020, some degree of social distancing is likely to remain in place for some time, and the economy must adapt. With this in mind, we continue to focus on identifying those business models that can survive and thrive in a post-pandemic world.

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