With the job retention scheme tapering over the summer months, there was always a need for more stimulus to protect against a quick rise in unemployment as we head towards the end of the year. The question is whether what was announced on Wednesday was enough?
The highlights were:
- A job retention bonus of £1,000 for every furloughed employee who is still in work at the end of January 2021 – though employers will only get the payment as long as they meet the lower earnings threshold, so this may mean a number of fulltime positions are brought back on a part time basis.
- A raft of grants and measures to support the hiring of young people and apprentices – this will be needed, as, for example, we haven’t got enough construction workers in the UK to deal with current workflows, so there is work to do if the Government’s ‘Build Build Build’ campaign is to prove effective.
- A six-month cut to Value Added Tax (VAT) from 20% to 5% for the hospitality industry, restaurants, hotels, and attractions.
- An “eat out and help out” scheme to offer 50% discount up to £10pp for anyone eating out on a Monday, Tuesday, or Wednesday in August.
- A stamp duty holiday to 31st March 2021 on homes up to £500k.
- A green homes grant of up to £5,000 if you spend it on things that make your house more efficient.
It wasn’t a quiet statement by any means, though the measures were certainly more targeted than expected, specifically focussing on the hospitality industry, young workers and the housing market. If you were looking to buy a house worth £500,000 in the next nine months, you will now save £15,000 in stamp duty, and if you eat out every Monday in August, you could save up to £40 per person on the menu price, but how does that translate to the whole economy?
As I write, a notification has just popped up from BBC News, titled “John Lewis and Boots to cut 5,300 jobs”. Clearly for them the chancellor’s announcement wasn’t enough, even though to keep them on they would have received £5.3m in job retention bonus’. With incomes in those sectors slashed during the pandemic, the cost of any unproductive employee is a lot more than £1,000 between now and January. Perhaps until yesterday, they had planned to cut 6,000 jobs, or 5,800, or 5,400… my point is that it is only likely to make an impact at the margin, if at all.
To put it into context, there are currently 10 million people on furlough, equivalent to 28% of the working population. One of our partners, Pantheon Economics, believe that around 20% (or 1.8 million people) of those furloughed are likely to be laid off over the coming months. It may be higher or lower than that, but if they are correct, that would cause the unemployment rate to rise from 3.9% to 9.5%. Our view is also that a significant number of those currently furloughed will not return to their previous role.
The challenge then, for our economy, is how to bounce back into 2021 and beyond. If unemployment is at nearly 10%, there are a lot of jobs that need to be created before we get back to growing at full click. Whilst welcome news for certain industries therefore, the Chancellors announcements on Wednesday are not enough to allow our economy to bounce back strongly over the years ahead.
Importantly though, it was never our expectation that all the ammunition would be used across the summer. The Chancellors response to the pandemic has been very supportive, and this weeks announcement is more likely to be a stop-gap, with another much larger expansion planned for the Autumn, when we hope to have more information on vaccine progress and the post-Brexit trajectory. By then we will all have moved house and will be fed up of eating out every Monday…