Analysis Of The Chancellor's Economic Statement
A lot was riding on the Chancellor’s economic statement today (8 July), and, overall, he didn’t disappoint.
The Government’s “Plan for Jobs” sees billions more injected into ‘protecting, supporting, and creating jobs’ – and the Chancellor made clear that, if needed, there would be further action.
Some of the schemes announced today are no-brainers – a large-scale jobs programme for young people, investment in green jobs, and subsidies for apprenticeships. Others will depend on whether the problem is one of demand or supply. Sacrificing billions in tax in order to stimulate a market only works if the problem is with consumers. If the issue, for example, is businesses not opening because they can’t afford to operate under ‘Covid-secure’ measures, then cutting consumer costs won’t make a difference. By the Autumn budget we’ll have a much clearer idea – and can expect new measures to match that understanding.
👍 GOOD FOR
The next generation
There have long been calls for an ambitious programme of support for young people and the Chancellor did not disappoint. The £2 billion-plus ‘Kickstart’ scheme will pay businesses up to £6,500 a head to create *new* jobs for young people. Importantly, they have to be ‘good jobs’, paid at National Living Wage for a minimum of 25 hours a week, and complete with training and support to find a permanent role once the subsidy ends. Young people have been particularly hard hit – this is typically the case in recessions, but this time they have also faced extreme disruption to their education. This scheme will go some way in minimising the risk of long-term scarring for the next generation.
The Chancellor’s 'Plan for Jobs’ is a big step-up in support for the unemployed and delivers on several of our recent proposals. Measures include a boost to the Rapid Response Service to quickly get support to newly-redundant workers, widening the reach of the National Careers service to an extra 269,000 people, and doubling work coaches. A more targeted £40 million job-finding support service will provide 1:1 online support for those who have been unemployed for three months. This are all sensible – if not wholly sufficient (see our MIA entry below) – measures that will make a big difference to jobseekers.
Targeted VAT cut
The Chancellor announced a huge VAT cut on food, accommodation and attractions. While a blanket cut could have proved a costly waste of money, this is specifically targeted at those sectors that have been hardest hit – hospitality and tourism. And it’s potentially bold enough to make a difference. After the 2008 financial crash, then-chancellor Alistair Darling also opted for a temporary VAT cut – reducing it from 17.5 to 15 per cent - today’s Chancellor isn’t messing about, slashing the tax by 15 percentage points to 5 per cent. If the issue is indeed demand, than this move could support millions of at-risk jobs.
👎 BAD FOR
The Chancellor is right not to extend the furlough scheme: as Reform has pointed out, it runs the risk of prolonging ‘zombie’ jobs and damaging the economy further. It’s also true that some businesses, particularly those that are struggling to re-open, are going to need further help. The Job Retention Bonus is an attempt to avoid those businesses making early redundancies. Like the furlough scheme in general, however, it is eye-wateringly expensive and poorly targeted. The bonus appears to be available for every person brought back from furlough (hence the up to £9 billion price tag) – including those who have already returned to work – regardless of the financial health of the business. To use the Treasury parlance, looks like risking a lot of ‘deadweight’ expenditure.
The Chancellor is right to want to see the housing market reboot, but it is not clear that this isn’t happening of its own accord. Media reports from June highlight that the property market rebounded to near pre-Covid levels – perhaps unsurprising given pent-up demand. There is a risk that the Chancellor has just given away almost £4 billion to solve the wrong problem. The bigger issue may be nervous banks reluctant to give mortgages with such high levels of economic uncertainty. Investing in getting spades in the ground may be a better option – creating jobs and increasing supply.
Points for creativity
Turns out there is such thing as a free lunch, or at least a half price one. The Chancellor will have boosted his approval ratings even further with his “never been tried before in the UK” ‘Eat Out to Help Out’ scheme, giving diners a 50 per cent discount on meals eaten in registered businesses.
If the problem is consumer demand, then this could make a real difference to footfall, which in turn will indeed help protect jobs. If the problem isn’t demand – or at least the prospect of a tenner off a meal isn’t enough to outweigh people’s fear of catching the virus – then this is a mildly costly (banked at £500 million) bung to the middle class.
But as Reform has long argued, innovating means risking failure, and if there’s ever been a time to try things even though they might not work, this is that time.
Despite multiple, welcome pledges on skills for young people – a £17 million boost for work academies, £111 million to triple participation in traineeships, and £101 million to get young people studying for Level two and three qualifications – there appears little by way of investment in retraining for adults. One of the unique aspects of this recession is its sectoral nature, meaning thousands of workers are not just going to have to find new jobs, but do so in entirely new sectors. Reform and Learning and Work Institute last week called for a bold offer for career changers, including a £5,000 learning account to enable reskilling. On this the Government has fallen short.