Yesterday, Rishi Sunak unveiled his Summer Statement full of pledges to help the UK bounce back from coronavirus. But what does it mean for business owners?
There were announcements about cuts in Stamp Duty and also investment in infrastructure and green homes, but I’m going to concentrate on two areas for business owners – the impact on employers, and the impact on the hospitality sector.
You can watch the full video below –
Plan for Jobs
Let’s start with employers and also prospective employers.
A large Plan for Jobs package was announced – it could be worth up to £30 billion.
Job Retention Bonus
The first part of this was the Job Retention Bonus. This ties into the Coronavirus Job Retention Scheme, better known for everyone as the Furlough Scheme.
The Furlough Scheme comes to an end on 31 of October. So far, over 9 million people are on the furlough scheme and it’s cost the Government over £27 billion.
People are aware that it does have to end, but of course, the end of the Furlough Scheme could bring a lot of redundancies.
Yesterday, Rishi Sunak announced there will be a Job Retention Bonus to reward businesses who do genuinely use it as a retention scheme, not a delaying scheme.
If you have a member of staff who has been furloughed, but you bring them back and they still work for you on 31 January 2021, you will be paid a £1,000 Job Retention Bonus per employee.
The full details are going to be released later in the month but HMRC makes it clear that the staff member does have to be brought back at a decent level and they must be paid at least an average wage of £520 per month between November and January.
And it does appear to be anyone who has been furloughed, even if they’re already back.
There will be a £2 billion Kick-Start Scheme to help create more jobs for young people.
The scheme will fully fund 6-month work placements for people aged 16-24 who are on Universal Credit. The scheme will cover up to 25 hours per week at National Minimum Wage plus associated National Insurance and Pension contributions.
As an example, the scheme would pay up to £5,330 of the gross wage of a 21 year-old over 26 weeks.
It’s then up to the Employer whether they want to top this up – either the hourly rate or the number of hours.
From 1 August 2020 until 31 January 2021, there will be an additional payment to employers who take on apprentices.
This will be £2,000 for apprentices under the age of 25, and £1,500 for older apprentices.
This is on top of any existing grants available but can’t be doubled up with the Kick-Start Scheme.
Help for Hospitality
There were also two big announcements to help the hospitality and tourism sectors that have been hit hard due to coronavirus.
Reduction in VAT rate
The first measure is that Standard Rate of VAT will be cut from 20% to 5% in the hospitality and tourism sector.
This will cover accommodation, admission fees, food and non-alcoholic drinks and will run from next Wednesday 15 July through to 12 January 2021.
Eat Out to Help Out
The second initiative is the Eat Out to Help Out scheme. To encourage people to spend money in the hospitality sector, the Government will be funding 50% of the cost of meals in pubs, cafes and restaurants on Mondays, Tuesdays and Wednesdays in August.
This will cover 50% of the cost of food and non-alcoholic drinks for a sit-down meal, with a maximum discount of £10 per person. Children will also get the discount, so a family of four could save £40 on each meal, but the discount doesn’t cover takeaways or deliveries.
There’s no limit on the number of meals you can have – it will be the business that applies the discount.
Businesses can register to be part of the scheme from next Monday and the Government says it will refund them within 5 days of each claim.
What do I think?
Overall, these measures have got to help businesses.
There have been calls to extend the furlough scheme but, with over 9 million people on furlough and a cost of £27 billion so far, it probably does need to end.
However, I’d have been in favour of a sector-specific extension – for example hospitality, travel, and the arts have been hard hit and many venues won’t be open for a while yet.
The £1,000 Job Retention Bonus is indeed a bonus and will be a help to many businesses but I’m not sure it will affect the thinking of any employer on whether to retain staff. £1,000 wouldn’t cover the cost of an employee for the 3 months, while businesses who have already brought staff back will get the £1,000.
With a potential cost of £9 billion, it could have been better used.
I think the Kick-Start Scheme and Apprentice Grant are a welcome incentive to boost the prospects of young people. Lots of young people have lost jobs in retail or hospitality, and a lot of graduate jobs have been withdrawn.
Therefore, these schemes will help a lot of young people – the Government estimates that 350,000 jobs will be created through the Kick-Start Scheme.
The cut in the VAT rate will indeed help. As an accountant, any change in VAT rate makes me want to cry a little – the admin side can be a nightmare with extra rates involved. A lot of tills will have to be reprogrammed!
And why pick the middle of a month for the start and end dates?!?
And why not include alcohol? I do actually understand that they don’t want to encourage too much drinking, but will we be seeing a “£5 packet of crisps with a free pint” offer to get round this?
But it will provide a boost. It will be interesting to see how businesses apply it – whether they cut prices to attract customers or keep the prices the same and use the VAT saving to protect margins while operating on smaller capacities.
For example, if you’re selling a meal that’s currently priced at £12, you pay £2 of VAT to HMRC and keep £10. With the new rate, you could either:
- Cut the price to £10.50 to attract customers. You’ll pay 50 pence to HMRC and still have the same £10.
- Keep the price at £12 as you can’t fit more customers in. You’ll pay 57 pence to HMRC and keep £11.43
Last time VAT was cut in 2008, a lot of businesses did keep prices the same for the simple reason that it saved reprinting the menus.
With single-use menus at the moment, this might not be the driver any more, but I expect many businesses will find a middle ground.
Either way, it should help the sector recover some lost profits.
And the Eat Out to Help Out scheme certainly can’t hurt the sector. How much of a boost it will give will remain to be seen – will it entice people back into restaurants who are nervous about social distancing? And will it simply see people move their Saturday night meal to a Monday if they’re on annual leave or furloughed?
I read this morning that the combination of the two measures will give us the cheapest Big Mac in the world, which I’m not sure was Rishi’s intention, but I do think the two changes will be a big help!
And I think than rather than actually pick the measures apart, I think we should actually look at them as a boost to employers, a boost to current and prospective employees, and a boost to the hospitality sector.
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