The coronavirus crisis has heaped a heavy financial toll of the UK and every other country on the planet, so much was hoped for ahead of chancellor Rishi Sunak’s summer financial statement on Wednesday.
With the furlough scheme due to end on 31 October, there are growing concerns that many people could be made redundant once it concludes.
So it was unsurprising that the bulk of his speech focused on job retention and creation, which could be a boon to the financial advice and wealth management firms looking to grow their ranks.
Quickly adds up
The UK economy shrank by 25% between March and April. It was the sharpest drop on record and took the economy back to the same level it hit in 2002.
With austerity still fresh in people’s mind, it was likely very reassuring that the chancellor’s approach has been to spend money.
And he plans to spend a lot of it.
Sunak’s strategy to protect and create jobs could cost as much as £30bn ($37.6bn, €33.3bn); including up to £9.4bn in job retention bonuses, £3.7bn to support jobs, £4.6bn to protect jobs and £12.5bn to create jobs.
Housing market boost
He then moved on to the contentious issue of stamp duty, offering a sigh of relief to house buyers by granting a stamp duty land tax (SDLT) “holiday” from 8 July 2020 until 31 March 2021.
The tax-free threshold has been raised to £500,000 from £125,000 during that window.
Andrew Southern, chairman of property developer Southern Grove, described SDLT as a “colossal revenue raiser”, indicating that HMRC stands to miss out on a significant sum.
Eat out and spend
To encourage the public to spend money, Sunak dropped value added tax (VAT) to 5% from 20% for the hospitality and tourism sectors from 15 July until 12 January 2021.
In a further bid to entice people to eat out, participating restaurants will also give patrons a 50% discount of up to £10 per head on their final bill.
All of this spending is on top of the growing furlough bill as the government will continue to pay up to 80% of individual salaries until the end of October.
Light on detail
One topic the chancellor skilfully avoided, however, was how his plans will be funded.
The pensions triple lock has looked vulnerable and the words ‘wealth tax’ have been circulating for some time, as commentators and politicians try to understand how the UK will ultimately balance the books once the spending splurge is over.
But neither was mentioned and the chancellor offered no hints about what his plan will be in the Autumn Budget to refill the government coffers.
Quilter financial planning expert Rachael Griffin commented: “Today’s announcement was all about spending and stimulus, with only a cursory nod to the importance of balancing public finances, which will come in the autumn.
“The government are keen to cast Labour as the party of ‘tax, tax, tax’, with Boris Johnson using [prime minister’s questions] to draw attention again to the shadow chancellor’s comments over the weekend about the possibility of exploring a wealth tax.”
She continued: “However, if Rishi Sunak wants to balance the books and begin to repair the public finances following a huge expansion in the budget deficit, he may struggle to do so without either raising taxes or curbing reliefs.
“It may mean that, for the time being, he can enjoy a moment in the sun; with a jobs plan, giveaways to homebuyers and subsidised meals under the ‘eat out to help out’ initiative.
“But come this autumn, the Treasury will have to confront some hard truths and the chancellor already knows he will have to land some difficult messages later in the year.”
Griffin added that the Treasury “will be hoping that the stimulus measures announced today generate an increase in economic activity and that tax receipts from day-to-day activity begin to show signs of recovery”.
“Nonetheless, it seems extremely likely that over the coming months the government will be looking at ways to increase tax revenues further once some form of economic normality has been restored,” she predicted
But we will have to wait until the Autumn Budget to find out what those plans may be.