As I See It: Terry Murden
First came the Prime Minister’s promises of a New Deal. Now we have the Chancellor’s Meal Deal, an offer to dine out at the Treasury’s expense as part of a menu of job schemes and tax cuts.
Rishi Sunak will never be accused of avoiding give-away budgets, not that he has much choice. Either he keeps dipping his spoon into the seemingly bottomless pot of cheap money, or the workers go hungry.
His meal vouchers may be welcomed by grateful families and, more importantly, customer-starved restaurants, but the idea is little more than a gimmick to feed the headline-hunting tabloids. As the Labour Party Shadow Chancellor Anneliese Dodds points out, the key reason for people staying away from restaurants is not the price of a meal, but a fear of contracting or passing on the coronavirus.
The substantial part of his summer economic statement, or “phase two” of the recovery plan, was the VAT cut and further help with securing jobs, principally by ensuring companies were encouraged to bring back those who have been furloughed.
Businesses, of course, welcome any help they can get, but the more savvy analysts saw the statement as a little lacking in ambition, and questioned whether alternative measures would have been more effective.
The offer of a £1,000 bonus for each member of staff brought back from furlough may keep firms and employees in tandem, but don’t bet against some keeping staff on only to collect the bonus and see them through Christmas, before letting them go in January when terms of the deal end. As Azad Zangana, Senior European economist and strategist at Schroders says, the majority of the bonus payments will go to firms that had planned to bring back their staff in any case.
An alternative to the Kickstart scheme for retaining young workers could have been a cut in national insurance contributions, or raising the threshold for paying income tax for this age group.
The cut in VAT was always going to be well received, though if he was tempted to make an ‘across the economy’ cut, as in 2008, the Chancellor probably realised it was a cost that the taxpayer could not afford. In any case, he would have been limited in what he could do under the terms of the withdrawal agreement with the EU.
He could have offset the VAT cut by introducing an online tax, targeting the billions spent by stay-at-home shoppers, while encouraging more of us to head to the empty high streets. As such, the impact of the new 5% rate will be limited to food-related outlets.
There was no word on business rates, nor any direct support for business investment or sectors such as retail and oil and gas. However, reforming rates is a big challenge, while he may be applying wait-and-see tactics on the energy industry to see how it comes through the summer and what impact his green energy plans have on the sector.
The cut in stamp duty will be cheered by home buyers and estate agents, though the housing market had already seen significant movement following the easing of lockdown. So, as Nimesh Shah at tax and advisory firm Blick Rothenberg says, it’s questionable whether such a cut was needed.
That hasn’t stopped the Scottish Tories calling on the Scottish Government to replicate the cut in property taxes, with party leader Jackson Carlaw warning that by not doing so “the consequences for families and the wider economy will be dire”.
The figures don’t really support such an argument. Nicola Sturgeon’s government has said it has no intention of cutting Land and Buildings Transaction Tax (the Scottish equivalent to stamp duty), and with some justification, given that the price of homes is lower in Scotland.
‘For the most part, the summer statement was an exercise in injecting some confidence into businesses which may have been wavering on whether or not to retain, let alone recruit staff’
In a normal year almost half (45%) of sales in Scotland are not liable for LBTT. Increasing the threshold to £500,000, therefore, would take over 90% of house sales out of LBTT altogether, according to the Chartered Institute of Taxation.
For the most part, the summer statement was an exercise in injecting some confidence into businesses which may have been wavering on whether or not to retain, let alone recruit staff, while tempting families with meal vouchers will help to ease the lockdown blues among those who have become weary of 100+ days staring at four walls.
That said, it was more than just sticking plaster aid, although a much bigger package will come in the autumn when Mr Sunak delivers a proper budget and announces some infrastructure spending that will aim to get the economy on the move.
By then he will hope that the coronavirus has been tamed, if not eradicated, and that he will be in a position to assess whether the stimulus committed so far has done the trick and eased pressure to raise taxes that some are beginning to work into their calculations.
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