What Rishi Sunak should do in the July ‘Budget’ to bolster our personal finances

Linda J. Dodson

The British economy is in dire need of a jump start and the lifting of lockdown alone will not be enough for the millions of jobless Britons, those forced to take a pay cut and their ailing employers. 

Chancellor Rishi Sunak’s generosity during the Covid crisis so far means that many anticipate a fresh round of support package measures during his economic update on Wednesday. 

But the Government has already warned that the enormous costs tied to the support packages will have to be repaid in one form or another down the line – likely at the expense of the taxpayer. 

Lockdown may be over as the country comes out of hibernation but wages are unlikely to bounce back as quickly as they dropped with mass job cuts expected over the summer.

It is too soon to roll out any policies that could punish prudent savers, workers and investors. Mr Sunak is likely to avoid doing so until the economy begins to recover and household finances are more stable.

The economic update on Wednesday is not a Budget, despite early predictions of an “emergency Budget”, and is therefore unlikely to include any major tax updates, however many expect announcements around VAT, stamp duty and business rates.

Comprehensive plans are likely to be pushed back until the autumn, with the Chancellor expected to focus on getting furloughed employees back to work. 

Job creation

The Treasury needs to give employers an incentive to start hiring again by making the process cheaper. It should also continue to encourage businesses to retain employees where possible. 

There are fears that the furlough scheme has only served to delay redundancies until it ends in October. More than nine million employees, a quarter of the workforce, have been furloughed, and there are concerns that many will not have a job to return to. 

The focus must therefore shift towards supporting job creation before the scheme comes to an end. 

It is understood the Chancellor will announce that companies will be paid £1,000 cash bonuses by the Government to hire young people as trainees,  as part of a package of measures to alleviate post-coronavirus unemployment.

The Government is said to be considering a range of measures to cut the costs of businesses to help them keep staff on. Options weighed by up the Treasury include a National Insurance holiday for employers and an increase in the employment allowance. 

VAT cuts

The Treasury has faced growing pressure to cut VAT to boost consumer spending and support households that have lost income during the lockdown, with two former chancellors calling for a reduction. 

But Mr Sunak has hinted that he will hold off on these changes, having recently highlighted that household finances are still relatively healthy thanks to income support schemes.

A one percentage point cut to the standard rate would cost the Treasury £6.9bn, HMRC has estimated. Mr Sunak must decide if every industry needs this boost or if a sector-specific VAT cut would be more effective. 

Reports have suggested that this partial cut is on the table, in a move that could boost the hardest-hit industries including hospitality and tourism. It may be too soon to predict the shape of the recovery, with pubs, restaurants, hairdressers, cinemas and theme parks having reopened on July 4 and the travel ban lifted only recently. 

Voucher scheme

The Treasury is reportedly considering radical plans to give Britons vouchers to coax them back to shops, restaurants and bars. 

Boosting consumers’ confidence to spend must be top of the Chancellor list of priorities if he hopes to revive the economy fast enough.

The British Chambers of Commerce and think tank Resolution Foundation have each urged the Government to trigger a boost in spending by giving all adults £500 and children £250 in vouchers to spend in the businesses that have been worst-hit by the economic downturn caused by the pandemic. 

The vouchers could only be used in certain sectors, including hospitality and retail.

Stamp duty

A six-month stamp duty holiday is among other proposals rumoured to be under consideration for this week’s announcement. 

Stamp duty should be slashed dramatically and the threshold at which it starts should be increased to deliver a badly-needed shot in the arm to the housing market. This would also boost all adjacent industries that benefit when people buy and sell.

The Chancellor is rumoured to be drawing up plans for a temporary exemption for homes at the lower end of the market by raising the threshold at which stamp duty becomes payable.

Stamp duty is not charged on the first £125,000 of a property’s selling price and starts at 2pc on homes worth up to £250,000, then 5pc on up to £925,000. 

The new threshold, which is likely to be between £300,000 and £500,000, is expected to be announced on Wednesday but may not come into effect until the Autumn Budget – a move that may paralyse the market until then if people wait to complete on their transactions. 

Pension triple lock

The state pension triple lock is expected to be one of the major casualties of the pandemic, as the Chancellor has been said to be setting out plans for suspending the manifesto promise. 

However, any major changes require parliamentary approval, meaning the Chancellor can only signal plans rather than push through any immediate changes. 

The Government is rumoured to be considering breaking its pledge following concerns the policy has become unaffordable as a sharp rebound in wages predicted next year could add billions to the benefits bill. 

The Chancellor must set out a clear plan on the triple lock well ahead of the up-rating next year, as tens of millions of pensioners rely on the yearly boost. He should heed warnings that any temporary freeze on state pensions could be the death of the triple lock policy.

Source Article

Next Post

Financial services suffer record slump

Financial services firms suffered their sharpest ever downturn in the second quarter of the year as the pandemic piled pressure on jobs and profits.  As many as 62pc of firms were hit by a slowdown, with just 10pc reporting an increase in volumes according to a survey by accountant PwC and the […]