Rishi Sunak announces comprehensive plan to support the economy

Published On: July 10, 2020Categories: Latest News3.1 min read

The government has also announced tax relief in the form of a VAT cut from 20 per cent to 5 per cent for the hospitality sector

The Chancellor has announced a comprehensive three-phase plan to support the economy. In the first phase, the government has announced a £160 billion support package for the essential public services in the UK for providing employment to around 12 million people.

In the second phase, the investment would be utilised on the skill development of young people and job creation. The employers will receive £1,000 for each furloughed employee who is called back to work.

The government has also announced tax relief in the form of a VAT cut from 20 per cent to 5 per cent for the hospitality sector and rolled out ‘Eat Out to Help Out’ discount scheme to incentivise people to eat out and encourage the already battered hospitality sector due to the travel restrictions imposed during the lockdown. As a matter of fact, 80 per cent of the firms in the hospitality sector stopped trading, and nearly 1.4 million workforces have been furloughed.

The British government’s new ‘Eat Out to Help Out discount scheme’ will provide a 50 per cent waiver for sit-down meals in eateries, and pubs to encourage people to make a safe return to eating outside. In addition, the British government wants to boost consumer sentiment in terms of buying, selling or renovating their houses. Therefore, on the first £500,000 of all property sales in England and Northern Ireland, the Chancellor has announced a temporary holiday on stamp duty with immediate effect until 31 March 2021. This implies that buying a property of £500,000 or more could save you a lot of money that you would have otherwise paid in the form of taxes. This move is likely to support jobs and drive growth across the property and the housebuilding sectors.

During the first quarter (period ended March 2020), the Gross Domestic Product (GDP) of UK fell by 2.2 per cent in terms of volume, according to Office of National Statistics (ONS). This can be attributed to the economic impact caused by the novel coronavirus and the measures taken by the government to curb the spread of this deadly pandemic.

The services output fell by a record 2.3 per cent during the three-month period ending March as the services, production and construction sectors provided a negative contribution to growth in the output approach to GDP. For the three-month period ended April 2020, the unemployment rate in the UK was up by 0.1 percentage points to 3.9 per cent in comparison to the previous year.

Due to economic impact of the novel coronavirus and the apparent risk of a tidal wave of unemployment, Rishi Sunak, the Chancellor of the Exchequer, took to the despatch-box in a mini- budget to announce his plans for offering support to the struggling sectors on Wednesday, i.e. 8 July 2020.

While it may look like a budget, but it was just a summer statement which complements the earlier spring budget. The Chancellor reiterated the extent of the economic crisis. The production sector output plunged by 9.5 per cent in the three-month period ended in April 2020. The output from the construction and the services sectors was down by 18.2 per cent and 9.9 per cent respectively, during the three months to April 2020. In addition, millions of people have been furloughed.

According to the one of Britain’s top economics consulting firm, Centre for Economic and Business Research (CEBR), the average price of a house in the UK is likely to fall by around 13 per cent in the present scenario.

Due to the economic fallout in the wake of the coronavirus outbreak, the Bank of England (BoE) has also predicted a slump of up to 16 per cent in housing prices across the UK for the current year. As the lockdown has been lifted the release of the pent-up demand is expected, and the property prices are expected to rise in the long-term horizon. In addition, UK’s housebuilders are lobbying for a dedicated emergency fund for the sector with the government. The latest exemption in VAT and a holiday on stamp duty would act as a growth catalyst for the housebuilders.

About the Author: Jonathan Adams

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