Chancellor urged to go further with Covid-19 support
8 Jul 2020
Early reaction to the Chancellor’s summer update of measures to combat the economic challenges posed by Covid-19 has been largely positive, although there has been surprise at the lack of support for some badly affected sectors such as retail and aviation
8 Jul 2020
Chris Sanger, EY’s head of tax policy, said: ‘In what was clearly a “Tax Less, Spend More” statement, 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).
‘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.’
On the move to raise the threshold for stamp duty on house purchases to £500,000 until next March, designed to stimulate the flagging housing and construction sectors, Tim Walford-Fitzgerald, private client partner at accountancy firm HW Fisher, said the success of the cut would depend on the target and the timing.
‘The economy is uncertain and this reduction won’t necessarily be enough to spark the confidence needed to take on long term liability of a house purchase.
‘There is more to consider – mortgage availability, rising house prices, economic growth and overall market confidence are critical factors and the Chancellor should not forget that,’ he said.
Sean Randall, partner at Blick Rothenberg, pointed out that the move had been widely leaked, which may have prompted Sunak to launch the holiday now rather than in the autumn.
‘It is headline-grabbing stuff and will please many, particularly in the north. But evidence from previous stamp duty holidays shows that it is unlikely to increase sales volumes and will merely bring them forward.
‘The end of the holiday was expected to coincide with a significant fall in the market. That would have made the fall even greater. It is good, therefore, that the holiday is longer than expected at eight months. But even eight months will be too short unless there really is a “V” shaped recovery.
‘The Chancellor has put a mask on the face of the housing market. The real story is what will the face look like when it is lifted. That depends on the success of the plan for jobs announced today.’
The Chancellor’s planned cut in VAT for the hospitality sector mirrors the response of the then Labour Chancellor, Alastair Darling, to the global financial crisis in 2008 when the standard rate of VAT was reduced from 17.5% to 15% for 13 months.
Lee Nuttall, tax partner, at law firm Gowling WLG said: ‘This successfully stimulated retail sales (for example) by 1%, at a cost to the Treasury of c£12.5bn.
‘Mr Sunak is supporting a return to normality for the worst affected sector in the UK economy by proposing a standard rate VAT cut for the hospitality and tourist sectors from 20% to 5% from 15 July to 12 January 2021.
It will be interesting to see if the VAT saving is fully passed to customers.’
The Chancellor’s energy efficiency stimulus package worth £3bn has won plaudits.
Steve Jennings, head of energy & utilities, PwC UK, said: ‘Any stimulus package that helps us on the path to net zero by 2050 is welcome, and the £2bn committed to green homes grants will help accelerate the pace at which homes are retrofitted with energy saving insulation.
‘Not only is this critical to the success of any widespread energy efficiency programme, it will also quickly create jobs, which is hugely important to the economic recovery following the COVID-19 crisis.’
However, a number of commentators drew attention to sectors of the economy which appear to have been left behind in the support schemes.
Marvin Rust, head of tax at Alvarez & Marsal, said: ‘A VAT cut that only applies to the hospitality and tourism sectors ignores industries like retail and aviation that are crying out for additional help.
‘These sectors have been shuttered for months and are struggling with cash flow, paying their rents and retaining employees. A cut to VAT and a national insurance holiday would have been a lifeline for these companies, but now they are forced to go without.’
Heather Powell, Blick Rothenberg partner and head of property and construction said: ‘The Chancellor has given nothing to landlords of commercial premises today.
‘Many property investors have received no rent from tenants in the retail, leisure and hospitality industry since December 2019.
‘All leisure and hospitality businesses need premises – and if the landlord is about to appoint liquidators the restaurants and pubs being supported by “Eat out to Help out” discount may find they have a short term future.’
There was also criticisms of Sunak’s failure to extend the VAT cut for the hospitality sector to help the charitable sector with a similar cut to VAT for services provided to those organisations.
Mark Hart, charities partner at Blick Rothenberg, said: ‘Irrecoverable VAT costs the sector approximately £1.5bna year. A cut to VAT for registered charities would have been a tangible way to help a sector whose income is expected to fall by £12bn this year. The Chancellor missed an opportunity to help jobs in this vital part of our economy.’
Rust concluded: ‘Despite the government’s focus on jobs, without additional measures of support, many sectors will struggle to retain existing staff, let alone bring back all employees from furlough and recruit new colleagues – even with the state bonuses.
‘Although the Chancellor talked about payment for the support over the medium term, he did not deliver the psychological assurance to consumers that there would be no tax rises in income tax or VAT in this Parliament.’