Further fiscal interventions focused on post-furlough future

ICAEW 9 July 2020: Chancellor announces £30bn in new measures to support, protect and create jobs, bringing total fiscal interventions to £190bn.

The Chancellor used his summer statement speech to set out a phased approach to the UK Government’s response to the coronavirus pandemic.

The first phase – the existing measures already taken during the pandemic – was about the protection of the economy during lockdown, while the second phase – the subject of yesterday’s announcement – is about jobs. The third phase – to be announced later in the year – will be about rebuilding the economy and investing for the future.

As anticipated, the summer statement promised substantial sums to support the economy as it emerges from lockdown, with the Plan for Jobs including £30bn in additional funding measures to support, protect and create jobs through economic stimulus.

  • £9.4bn – Job Retention Bonus: £1,000 for keeping furloughed staff on until January
  • £2.1bn – Kickstart work placements for those aged 16-24
  • £1.6bn – boosting work searching, skills and apprenticeships
  • £4.1bn – temporary cut in VAT on hospitality, accommodation and attractions
  • £0.5bn – discounts on eating out
  • £5.6bn – infrastructure investment announced by the Prime Minister last week
  • £1.1bn – public sector and social housing decarbonisation
  • £2.0bn – grants to make private homes more energy-efficient
  • £3.8bn – six-month cut in stamp duty to stimulate the housing market

This takes total fiscal interventions announced by the government to around £190bn, including the £1.3bn for cultural institutions announced a few days ago.

When combined with lower tax revenues, this is expected to result in a fiscal deficit in 2020-21 in excess of £300bn. A better estimate should be available next week from the Office for Budget Responsibility when it updates its short and long-term forecasts.

The amounts above do not include tax deferrals and business loans and guarantees, which have now reached a total of £123bn.

It is as yet unclear whether there will be any statements about the planned third phase on rebuilding the economy before the Budget and spending review later in the autumn when plans for 2021-22 and beyond will be set out in more detail. 

There was significant disappointment in some quarters that the National Infrastructure Strategy, originally scheduled to be published in March, has still not been published.

For those trying to track the fiscal position this year, this is unlikely to be the last fiscal announcement that will move the dial. The government has indicated that further funding is likely to be made available later in the year to local government on top of the £2bn package announced last week. Rescue packages may also be needed for vulnerable sectors such as universities.

This article was originally published by ICAEW.

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