Summer Statement: Hoping for the best

Now for the hard work …

The Government’s response to the outbreak of COVID-19 was unprecedented in both scale and speed and was successful in protecting a significant share of the economy during the most stringent period of lockdown. The Chancellor’s Summer Statement demonstrates that protecting the economy was the easy part. As lockdown is eased, the sheer scale of the challenge facing the UK economy is starting to become apparent.

The Chancellor announced ￡30 billion of additional spending in the Summer Statement. This would normally have rendered economists speechless, but it raised barely a murmur with some commentators suggesting it was too small a response to the circumstances. Large though the new spending is compared to pre-existing norms, the Chancellor is adopting a cautious approach. The Summer Statement appears to be a holding position, designed to avoid major shocks and to give the Government time to assess how the economy performs over the summer.

… with worries over the labour market …

What is clear is how concerned the Chancellor is about a possible surge in unemployment. The focus of the Summer Statement is very much on employment: protecting jobs and creating new ones. Trying to achieve this, he introduced both supply and demand side measures.

With the furlough scheme tapering from August and ending in October, the Chancellor announced measures to support young people into work, the major one being the ￡2 billion, ‘Kickstart’ programme to create six-month work placements for 16 to 24-year olds. Additionally, the Government is to increase the number of work coaches in job centres to help benefit claimants back into work and is pledging to provide new traineeships, increase apprenticeships and expand the Universal Skills scheme.

Experience suggests that young people are the biggest ‘losers’ when labour markets are under pressure and the proposed policies are therefore sensible. However, there is little to address the need to create higher value jobs in the UK or concerns over the precarious nature of many roles.

The Chancellor also announced a series of actions, on top of the previously announced acceleration of ￡5 billion of promised infrastructure funding, to boost demand for labour across the economy. These include:

• A ￡2 billion Green Homes scheme and ￡1 billion to improve energy efficiency in public buildings;
• The removal of stamp duty on house purchases up to ￡500,000 until 31 March 2021; and
• A reduction in VAT from 20% to 5% in the hospitality sector together with a discounted dine out programme for the summer.

The additional spending is welcome, especially the support for the hospitality sector, although the scale of impact is unclear as spending is down because consumers seem reluctant to go out rather than reluctant to buy things. While the cut in stamp duty will grab the headlines, it may benefit sellers and the higher value housing markets in the South of England more than anywhere else.

… meaning it’s wait and see

The announcements may be unlikely to shift consumer behaviour significantly – concerns over health still appear to be acting as a drag on spending. More significantly, there was not much for businesses to latch onto to begin to develop investment plans. Capital expenditure has been cut or paused and there is little prospect of the purse strings being loosened until there is more certainty about the future direction of policy. The Government has made clear that moving the UK towards net zero carbon emissions and levelling up the economy are its priorities, but current details are insufficient to form the basis of either business or investment plans.

There is therefore unlikely to be any significant boost to economic activity from the announcements. The Chancellor may have taken care of immediate issues, but the next time he speaks to the country it will be time to begin to put some flesh on the bones of the Government’s broader economic strategy.