It is easy to criticise Rishi Sunak’s Summer Economic Statement for not doing enough. The Chancellor had a difficult task to assess what size of economic stimulus would be effective.
His main aim was apparently to create jobs for those who had lost them or will be losing them soon. But the Statement.is very disappointing because it doesn’t deal with the realities of the situation for lots of businesses. Social distancing is very likely still to be in place after October, so it just will not be possible for many businesses to provide their services to as many customers as before lockdown.
He should have included a new coronavirus staff retention scheme (turnover based). It should have provided a proportion (say 80%) of the difference between the takings of a business in a month compared to the relevant month in 2019, for businesses that can demonstrate that because of social distancing they can’t deal with the same number of customers.
Rishi Sunak reported that £4.6 billion of consumer debt has been paid off and households have increased their bank deposits by £25.6 billion. This means there is the potential for more than £30 billion (about 1.5% of last year’s GDP) to be spent into the economy when households have confidence restored.
With an economy valued at £2000 billion I believe the maximum economic growth per year with which the UK can normally cope is about £60 billion. Therefore an economic stimulus of £30 billion at this stage is about right.
Instead of allocating up to £9.4 billion for his Job Retention Bonus scheme, I think Rishi Sunak should have used the amount to increase all working-age benefits such as Universal Credit, Family Tax Credit, Jobseekers Allowance and Employment and Support Allowance by £20 a week, the same value as his temporary increase of Universal Credit and Family Tax Credit in March. This would have targeted the money to the poorest in society who are most likely to spend it and to the areas where more of these people live. Giving employers £1000 per worker retained is not going to do much to encourage them to retain the most marginal workers, and will do very little if anything to increase demand in the economy.
A lot of the £5.6 billion for infrastructure projects is not new money and includes maintenance projects. £900 million is for shovel-ready projects in England in 2020-21 and 2021-22. But some of this, maybe the majority, will not be spent until the next financial year. We must hope that most of the £5.6 billion will go into the areas worst affected by job losses.
The £1 billion for public-sector bodies including schools and hospitals to fund energy efficiency and low-carbon heat upgrades is a good idea, as is the £2 billion Green Homes Grant to make homes more efficient. 100% grants for the poorest and 2/3rds for the rest are good rates.
£2.1 billion for his Kickstart scheme and £1.6 billion for apprenticeships targeted towards young people should be useful, though I think the minimum hours of work per week should be 30, not 25. With more than 700,000 people leaving education this year it may not be sufficient. I would also have targeted retraining schemes for those being made redundant in the aviation industry and aircraft building industry, and have piloted a Job Guarantee Scheme in north-east England for 40,000 people, which I think would cost about £210 million.
The VAT cut for hospitality, accommodation and attractions will slightly increase demand in these sectors, but if instead of a 5% cut VAT had been halved I think the effect would be double. The Eat Out to Help Out scheme costing half a billion is more of a gimmick or headline-grabber than a useful economic measure.
The temporary cut in Stamp Duty on property purchases is not being targeted and will go to those who are in work and can already afford the costs of moving. Its benefits are greatest for those people who can afford a property valued over £500,000.
Generally, this economic statement provides money for those who already have plenty and not to people who have had their incomes slashed by becoming unemployed. It provides a small economic stimulus which should result in some new jobs, and will help some young people avoid the dole, at least temporarily. He could have offered more assistance to over 25s who have been made unemployed, and by giving more money each week to those of working age not in work could replace some of the spending power lost through redundancies.
* Michael Berwick-Gooding is a Liberal Democrat member in Basingstoke and has held various party positions at local, regional and English Party level.