Scottish business broadly welcomes chancellors ‘tax less, spend more’ statement
In yesterday’s summer economic statement, chancellor Rishi Sunak announced a number of measures aimed at supporting the UK economy in the wake of the coronavirus pandemic, such measures include a temporary 5% VAT cut for the food and hospitality industry.
The cut marks a significant reduction from the current 20% VAT rate and will be in place for the next six months.
Mr Sunak also detailed the “eat out to help out” initiative which will see people in the UK receive a 50% discount off their restaurant bill next month in an attempt to encourage people to eat out.
The deal means people can get up to £10 off per head if they eat out from Monday to Wednesday.
The Treasury said the 50% discount can be used unlimited times next month and applies to participating restaurants, cafés, and pubs across the UK.
Within his statement, the chancellor also confirmed that the UK’s furlough scheme will end in October. From that point, a new Jobs Retention Bonus will be implemented for firms who retain staff. The companies will be paid £1,000 for every furloughed employee they keep on up to January next year.
Mr Sunak revealed that the UK Government will be launching a £2 billion scheme to help provide jobs for 16-24-year-olds for the next six months.
A temporary holiday on stamp duty on the first £500,000 of all property sales in England and Northern Ireland was also announced in the economic statement.
On the whole, business organisations across Scotland have welcomed the announcement. EY’s Chris Sanger, EY’s head of tax policy, labelled the statement as a “tax less, spend more” statement.
He said: “Rishi Sunak delivered not just a VAT cut for the few, but spending grants for the many. On the few, we saw VAT cuts of those in hospitality and leisure, whilst on the many, there was an effort to encourage people to eat out (but only at the start of the week) or to improve their green footprints (through making their houses more energy-efficient).
“The six-month targeted VAT cut may bring a smile to the face of restauranteurs but won’t apply to any alcoholic tipple that accompanies the food. Combined with the £10 “Eat out to help out” half price offer per diner per meal, this chancellor has been putting his money where his mouth is. Combined with a similar cut for accommodation and attractions, the chancellor has been showing his “get up and go” characteristics.”
He added: “But the largest impact was to address those fearing the effect of Furlough Cold Turkey, or the young facing a troubled job market. With a grant of £1,000 per furloughed employee retained through to end January next year, this element of the chancellor’s help may be small compared to the salary costs (effectively just over £300 per month) but will be welcome nonetheless.
“Whether this is enough to stop redundancies is yet to be seen. Also, this scheme may leave a sour taste in the mouth for those businesses which have struggled on without furloughing workers and be seen as unfair in relation to those who worked throughout the lockdown.
“For those entering the job market, the chancellor’s Kickstart scheme is set to attract up to 400,000 young people, who companies can take on, with the government grant paying the minimum wage for six months.”
Dame Carolyn Fairbairn, CBI director-general, commented: “The chancellor is absolutely right to prioritise jobs in his summer statement. Flattening the daunting unemployment curve about to hit our country could not be more important. Joblessness scars lives and hits the young and most disadvantaged hardest.
“Today’s jobs plan is an important step forward. For young people, the Kickstarter Scheme will help create jobs in the short-run that can turn into opportunities for the long-run, and firms look forward to working with government to get it up and running quickly and well. It is also good to see direct support for apprenticeships and careers advice, which will help build the skills as well as the jobs of the future.”
She added: “New investment in green growth will spur job creation on the road to net zero, while revitalizing demand through targeted VAT cuts for hospitality, an imaginative voucher scheme and stamp duty relief will be warmly welcomed by many businesses and help give consumers confidence to spend.
“But prevention is better than cure. Many viable firms are facing maximum jeopardy right now. The job retention bonus will help firms protect jobs. But with nearly 70% of firms running low on cash, and three in four reporting lack of demand, more immediate direct support for firms, from grants to further business rates relief, is still urgently needed.”
However, the Federation of Small Businesses in Scotland (FSB) has highlighted that many small businesses have not been supported by the chancellor’s package. Andrew McRae, FSB’s Scotland policy chair, said: “Good news has been in short supply for nearly four months. We needed action to help protect jobs and stimulate local economies across Scotland and that is exactly what the chancellor has set out to do.
“However, it should be noted that there are many small businesses that were not supported by the Chancellor’s package – with company directors once again overlooked. Given these businesses have had little to no support in over 100 days, FSB is hoping that support can be provided in the near future.”
On the ‘kickstart’ jobs scheme, Mr McRae said: “The jobs scheme will hopefully prevent a lost generation of young people, but for it to work in local economies, it must focus on the small employers who employ around one million people in Scotland. We can’t have a situation where local businesses are behind a queue of big corporates because of a target-driven approach.”
On the temporary VAT cut for hospitality and tourism sectors, he added: “Reducing VAT in sectors hit especially hard by the pandemic is an astute move. It will make everyday activities like grabbing a coffee and cake more affordable for budget-conscious consumers – while making the country a more attractive destination for tourists home and abroad.”
Commenting on the discount to encourage people to eat out, Mr McRae said: “Scotland is fortunate to have an array of fantastic food offerings in restaurants, cafes and pubs across the country. We need to encourage more people to get back out into the community and spending money, so any moves to do this are welcome.”
IPPR Scotland has also been slightly critical of the announcement. Russell Gunson, director of IPPR Scotland, said he was “disappointed” that the amount of money spent on reducing stamp duty in England is more than the increases in spending proposed to tackle youth unemployment.
He said: “When the Scottish Parliament decides its priorities we hope to see different choices that focus spending on the poorest and those most at risk of unemployment, rather than subsidies to those who can afford to own their own home.
“The new Kickstart Scheme is welcome and something we’ve called for in our own work. The damage that youth unemployment can do to young people and our economy means we must do everything we can to avoid it. But it’s important that the Kickstart scheme provides local flexibility so that Scotland can make sure the scheme operates in line with fair work, offering fair pay and good quality jobs, fully linked into Scotland’s education and skills system.”
Dr Liz Cameron, chief executive of the Scottish Chambers of Commerce, added: “This announcement marks the next step forward in ensuring we achieve an economic recovery that protects jobs. This is essential if we are going to be able to prevent an unemployment crisis as well as meet ambitious low carbon targets. The Kickstart Scheme is a practical step in the recovery that will protect existing jobs while creating new ones. In addition, the Jobs Retention Bonus scheme will act as a bridge to support the thousands of jobs that have been maintained through the furlough scheme. Employers will need this incentive to ensure they can deliver sustainable employment.
“The Chamber network stands ready to work with government on the detail of these schemes to ensure they are successfully delivered on the ground. SCC called for targeted VAT reductions for the hospitality and tourism industry and the chancellor has listened. These reductions are welcome as hard-pressed businesses in the tourism and hospitality sectors are in desperate need of such lifeline support.
“However, the chancellor missed an opportunity today to reduce VAT for the retail sector. This move would have encouraged more shoppers to return to our high streets and breathe life back into our local economies. The chancellor should still consider this reduction in his Autumn Budget.’’
Dr Cameron called the eat out to help out campaign a “shot in the arm” for the hospitality sector next month and said it would provide a “much-needed confidence boost” for consumers.
Ian Stewart, chief economist at Deloitte, said: “This is an impressive opening salvo in a campaign to secure the recovery. The aim is to sustain and build economic capacity, not to freeze it. Today’s measures will counter some of the biggest roadblocks to growth by supporting jobs and fuelling the hospitality sector and housing market.
“The recovery is underway, but much of the damage to jobs and businesses is likely still to come. The fiscal activism that helped the economy through the lockdown is being harnessed to the task of recovery. More will be needed of government. But today’s package shows that the chancellor is acting in scale and with imagination to bolster the recovery.”
Fraser Sime, regional director at Bank of Scotland Commercial Banking, said: “Two of Scotland’s most renowned industries, tourism and hospitality, are also two of those that have been hardest hit by COVID-19. Today’s announcement of a VAT reduction for these sectors will provide a much-needed boost for operators as they begin to reopen, as will the new ‘Eat Out to Help Out’ scheme designed to stimulate demand.
“Pubs, hotels, cafes and restaurants across Scotland are working hard to tempt their customers back into spending mode, so these measures will be received as helpful in getting firms on the road to recovery that bit more quickly.”
Kevin Brown, savings specialist at Scottish Friendly, added: “There will be a big sigh of relief from many workers up and down the country after hearing that employers will be incentivised to keep employees on when the furlough scheme comes to an end. In recent months the UK workforce has been divided between those still earning a full salary and able to save more due to decreased spending opportunities, and those who have seen their income cut and their potential to save limited.
“This new £9bn pledge from the Chancellor is an attempt to limit unemployment and level the playing field between households at either end of the scale. It won’t provide every household with the guarantee of employment, as inevitably some jobs will go, but it will provide many who have been furloughed with fresh hope that they will be able to return work.”
- Read all of our articles relating to COVID-19 here.