Chancellor announces package of economic measures to help steer the UK out of COVID-19 crisis
Published on 8th Jul 2020
The government's latest stimulus package provides much-needed support for job creation, as well as providing a boost to the hospitality, tourism and real estate sectors.
On 8 July 2020 the Chancellor, Rishi Sunak, announced his package of economic measures to boost the economy and protect jobs in light of the COVID-19 pandemic. The statement was the second in a trilogy of fiscal events this year - with a Budget already having been held this year in March (see our previous Insight here), and the autumn Budget still to come.
It was heralded as "A Plan for Jobs" by the Chancellor and given that major tax measures are normally reserved for the autumn Budget, it was not surprising that there was little in the way of tax measures for businesses. The emphasis was around measures to support jobs by focussing on skills and young people, creating jobs and greening our infrastructure.
Hospitality and tourism
The government announced a temporary cut in VAT for food, non-alcoholic drinks, accommodation and admissions to UK attractions, from 20% to 5%, beginning on 15 July 2020 to 12 January 2021. It is hoped this will encourage customers to spend more in some of the sectors worst affected by the pandemic to take advantage of temporarily lower prices. A similar temporary VAT cut that was in place from December 2008 until December 2009, during the last financial crisis, was successful in boosting consumer spending.
The Chancellor also announced a new "Eat Out to Help Out" scheme to encourage people to return to eating out. Every diner will be entitled to a 50% discount of up to £10 per head on a meal at a participating restaurant, café or pub. The discount can be used unlimited times and will be valid Monday to Wednesday on any eat-in meal (including non-alcoholic drinks) for the entire month of August.
The government will temporarily increase the nil rate band of stamp duty land tax (SDLT) for residential properties in England and Northern Ireland from £125,000 to £500,000, which will apply from 8 July 2020 until 31 March 2021. It is hoped this will help young people get on the property ladder and increase confidence in the market, which has seen a massive slump due to the pandemic.
First time buyers are already entitled to relief on residential properties up to £500,000 (they pay no SDLT on properties up to £300,000 and 5% on any portion between £300,000 and £500,000). The government estimates that this latest measure will mean nearly nine out of ten people getting on or moving up the residential property ladder will pay no SDLT at all.
Surprisingly, HMRC has confirmed that the reduced rate of SDLT will also apply to the higher rates of SDLT for additional properties, so a rate of 3% will apply for the purchase of additional dwellings up to £500,000. The nil rate band which applies to the "net present value" of any rents payable for residential property is also temporarily increased to £500,000. Companies as well as individuals buying residential property worth less than £500,000 will also benefit from these changes, as will companies that buy residential property of any value where they meet the relief conditions from the corporate 15% SDLT charge.
Delivering a green recovery
The Chancellor also demonstrated his continuing support for a "green recovery" by announcing further support for decarbonisation measures. These include a £2 billion 'green homes grant', which will give homeowners and landlords a voucher to make their homes more energy efficient, and £1 billion that will be available for the improvement of public sector buildings. A £50m fund is being established to develop the response for social housing. The measure also forms part of the government's commitment to focus on 'green jobs' as part of the recovery.
The government announced a new Kickstart scheme to fund the direct creation of "high quality" jobs for young people at the highest risk of long-term unemployment. It will form a £2 billion package under which the government will pay the national minimum wage for 25 hours a week (plus the associated employer National Insurance contributions and employer minimum automatic enrolment contributions) for people aged 16-24 for a six month work placement. Employers who meet the conditions can apply from August, with the first Kickstarters starting in work this autumn. The Chancellor confirmed in his speech that there would not be a cap on the number of places available.
Job retention bonus
The Chancellor confirmed that the Coronavirus Job Retention Scheme would end in October but he also announced that a 'job retention bonus' will be introduced to help firms keep furloughed workers. This will provide UK employers with a one-off bonus of £1,000 for each furloughed employee brought back into the business who is still employed as of 31 January 2021.
Osborne Clarke comment
March's Budget was a tough one for Chancellor at the start of the COVID-19 outbreak and it focused on a vital support package for the country (including the NHS). This statement was more forward-looking and was designed to focus on the second phase in the UK's recovery: jobs. The announcements made were welcome and should provide a much needed boost to the sectors hit hardest by the pandemic (notably hospital, tourism and property). The welcome support for the hospitality industry, in particular, came at the right time ahead of the August holidays.
It was also welcome news that the SDLT cut was not delayed until the autumn Budget (which some had speculated), as this could have had a detrimental effect on the housing market had both buyers and sellers waited for the planned cut. What is more surprising (but welcome) is the application of the reduced rate of SDLT for residential properties to the higher rates for additional properties and the confirmation that companies as well as individuals buying residential property can benefit from the temporary reduction in rates.
The final phase of the government's plan for economic recovery will look at rebuilding and we can expect to see many more tax announcements in the autumn Budget, with tax rises expected to pay for the additional funding ploughed into the UK as a result of this unique crisis.