David Lane, Partner and Technical Director
The UK Chancellor of the Exchequer, Rishi Sunak, made his Summer Statement this week and, as expected, announced a series of targeted measures to stimulate the economy. Generally, these have been received favourably. The measures include various carefully considered tax reductions that are due to come into place over the coming weeks. The Chancellor will hope that this combination of additional stimulus and tax reductions will have an immediate impact. We reflect here on the key changes and the impact it may have on you.
The economic backdrop
In the first two months of the 2020/2021 financial year, UK Government borrowing exceeded £100 billion. According to most estimates, it is headed towards £300 billion by the end of the financial year. The March 2020 Budget forecasted borrowing of £55 billion for this financial year, but here we are, in July, with total government debt now more than 100% of GDP. The Office for National Statistics (ONS) commented that public sector debt is "just under £2 trillion." Meanwhile, in the first quarter of 2020, the UK economy contracted 2.2%, the worst quarterly fall since 1979. The Bank of England forecasts unemployment rates at around 10%, likely to rise if we see a second wave of COVID-19 infections.
Job Retention Scheme and 'Bonus'
Companies have been able to bring back their furloughed workers since 1st July, when a flexible furlough scheme was put into place. Although the Coronavirus Job Retention Scheme (CJRS) will not be extended beyond October 2020, the Chancellor will introduce a 'Job Retention Bonus'. The scheme will pay £1,000 for every furloughed employee who remains continuously employed from the closure of the CJRS until the end of January 2021. Employees must earn, on average, more than the Lower Earnings Limit (£520 per month) in that period. Payments will be made to employers in February 2021. More details about the bonus scheme will be published at the end of July.
The Chancellor also announced a new scheme designed to create more jobs for young people in England, Wales and Scotland (although this does not include Northern Ireland). The aim is to create "hundreds of thousands" of six-month placements for individuals aged between 16 and 24 and deemed to be at risk of long-term unemployment. The Government will provide the necessary funding for each job up to the level of 100% of the "relevant minimum wage" for 25 hours per week, plus the associated Employer National Insurance costs and minimum pension auto-enrolment contributions. For a 21 to 24-year-old, whose minimum hourly rate is £8.20 per hour, this equates to a payment of circa £6,500.
As a further boost to the employment of young people, employers will receive a payment of £1,000 for each 16 to 24-year-old to whom they offer and provide work experience. The Government has also pledged to invest in better provisions for traineeships.
Hospitality VAT cuts
Acknowledging the huge impact lockdown has had on the hospitality sector, temporary VAT cuts will be in force from 15th July 2020. A 5% rate of VAT, down from 20%, will apply to: supplies of food and non-alcoholic drinks from UK restaurants and pubs; and accommodation and admission to attractions in the UK. The rate cuts are due to last until 12th January 2021, with further details from HMRC to follow in due course.
Temporary Stamp Duty Land Tax (SDLT) Cut
Hoping to add stimulus to the property market, the Chancellor announced that, in England, the nil rate band threshold for residential SDLT will increase from £125,000 to £500,000, with immediate effect until 31st March 2021. The stamp duty holiday offers a maximum saving of £15,000 and now means that nine out of ten buyers will not pay stamp duty on house purchases. For second homes, the 3% additional rate will continue to apply.
The devolved administrations in Scotland and Wales set their own rates of tax on Land and Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT) respectively. When there have been SDLT rate changes previously, the administrations have tweaked their bands, although not necessarily in line with Westminster. As at 9th July, neither administration has announced any change, but this may alter in the days ahead.
Green Homes Grant
The Government is also introducing a £2 billion Green Homes Grant, allowing landlords and homeowners in England to apply for a voucher providing at least £2 for every £1, up to £5,000 per household, to make their homes more energy efficient. For those on the lowest incomes, the scheme will fully fund energy efficiency measures of up to £10,000 per household.
In terms of the future outlook, we expect more detailed tax and spending plans to be put before Parliament in the Autumn Budget.
To read the full details of the Chancellor's Summer Statement, please click here. If you would like to discuss the implications of the summer update further, please speak with your LGT Vestra contact.
Sources: Technical Connection and CommissioningHR
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