Summer Statement 2020

I joined our KPMG COVID: New Reality seminar today to give my "live" reaction to the Chancellor’s second “mini” budget of the year.

Here is my rundown of the highlights from today, my thoughts on what these announcements might mean for both business and future tax policy and specifically that thorny question of how some these “treats” / giveaways might be paid for, in what is likely shaping up to be a very substantial Autumn statement.

Jam today

• As expected, the Chancellor confirmed a Stamp Duty holiday for properties under ï¿¡500,000. With the pressure to help the UK housing market bounce back, he has now confirmed this will start immediately and run until 31 March 2021.
• He claimed to be creative and introduced a ‘never before’ innovative measure “eat out to help out”. For the month of August, meals eaten at any participating business from Monday to Wednesday will be 50% off, up to a maximum of ï¿¡10 per head.
• In addition, the VAT cut we’d been promised did come. VAT on tourism and hospitality will be cut from 20% to 5% until January 2021. VAT cuts are a blunt instrument, but they can be highly effective in getting people to spend – if it’s passed on to consumers. He’s cleverly targeted it to the tourism and hospitality sector, which can stop some of the argument that this just accelerates spending on one off items rather than increasing our spending and helping accelerate economic growth in the longer term.

But really the key message of this statement is – protect jobs, support jobs and create jobs for the young and for the future.

• He led with a new “Jobs Retention Bonus” designed to reward and incentivise employers to bring their staff back to work and off furlough. A bonus of ï¿¡1,000 will be paid for every employee brought back from furlough. The employee must be employed continuously from November 2020 until January 2021 and paid at least ï¿¡520 each month.
• The Chancellor announced the Kickstart Scheme, targeting those aged 16 – 24 who are currently claiming universal credit. The scheme will be a ï¿¡2bn fund paying a National Minimum Wage for 25 hours a week for six months starting in August
• The Chancellor also announced a traineeship scheme to provide 30,000 new traineeships aimed at 18 – 24 year olds with a ï¿¡1,000 per trainee.

This is the start of more targeted help on jobs than the furlough scheme, and also a nod to the fact that while we will need to wean the economy off some of these emergency measures there is an underlying theme of fairness and not having the financial burden of this crisis resting too heavily on the shoulders of the younger generation.

• Interestingly some of these might seem quite small amounts, but for small businesses could really make a difference and start them “risk free” hiring.
• Finally, the “green agenda” gets a boost with ï¿¡1bn going to retrofit existing public buildings to reduce carbon admissions and some grants to homeowners to improve their properties. All of these are targets at “green jobs” helping both the economy and the green agenda (and chimes with statements in the Conservative manifesto on green jobs).

So, what does this mean for business and how might it be paid for?

We’ve had plenty of treats over the past few months but a bit like our Christmas dinner, it can take a while to burn off the excess calories.

We all know how hard that can be. The current support measures will need to be paid for. Going forward, I expect there to be a balancing act between investment in the economy and managing national debt.

With the Government’s focus on jobs more generally, I think there will be a limit to what the Chancellor can do in terms of raising tax on business. Indeed, despite having a relatively low statutory corporate tax rate here in the UK, our tax base is broad, meaning the overall burden on UK business is relatively high compared to other EU countries. Add Brexit into the equation and there will be pressure to ensure that the UK remains an attractive place for investment as this is likely to be a key driver for jobs in the future.

So, what next and where could he look in the Autumn and beyond. The UK Digital Service Tax is almost certainly here to stay but original forecasts were quite modest in terms of what that would raise for UK economy. We may see some efforts to broaden that – however this is not without issues given the US objections to digital taxes more generally.

Overall, I think you may see limited tax raising measures on business – we may even see more targeted reliefs, particularly around the green agenda and innovation.

That may leave the tax revenue raising measures in the Autumn Statement being focused on individuals so I would watch out for changes to pensions tax relief, equalising tax on investment income and earned income and possibly a reform to the way that work is taxed more generally – making it more relevant to today’s ways of working. Watch this space.