In a recent article, we highlighted that the Chancellor of the Exchequer, Rishi Sunak, was likely to delay introducing a stimulus package until the autumn, but may still make a more limited announcement of measures ahead of that during the summer. Since that article was published, the Chancellor has now arranged to make a summer statement on Wednesday 8th July 2020.
The Summer Statement
The Government have downplayed the idea that the summer statement will be any kind of emergency budget, in which a major stimulus package will be announced. Instead, it is being trailed as a "fiscal plan" and a "summer economic update", in which the Chancellor, in conjunction with the announcement of a few modest measures for boosting the economy, will set out his proposed road map for recovery from the coronavirus lockdown.
The following are potential measures that it has been suggested the Chancellor may announce to boost the economy in the summer statement:-
- The Labour Party and the former cabinet secretary, Gus O’Donnell, have been talking up the idea of a "wealth tax" in the form of a levy on personal wealth. The Financial Times have suggested that: "According to law firm Charles Russell Speechlys, HM Treasury has approached certain private banks and wealth managers to discuss the concept of a wealth tax." However, such a measure is highly unlikely to be implemented by a Conservative Government, as it would be hugely unpopular amongst its own supporters. In fact, when the idea was last looked at in March 2020 in the form of a so called "mansion tax", it was quickly shelved following what the Daily Express referred to as "a major backlash among Conservative MPs and grassroots."
- An increase in national insurance contributions for the self-employed has also been mooted. Currently, the self-employed pay a lower rate of national insurance contributions than the employed, but that has been on the basis that unlike the employed, they lose out in terms of not receiving holiday pay, sick pay, parental leave pay, and do not receive the benefit of having an employer paying into their workplace pension. This complete nonsense of an idea was last mooted back in 2017 by the then Chancellor, Philip Hammond, and was quickly shelved, after being widely and rightly derided as a tax on aspiration. The idea is unlikely to see the light of day in the summer statement for the same reason, and as with a wealth tax, it would be highly unpopular with the Government's own supporters.
- A reduction in VAT. There are major doubts about the overall effectiveness of a VAT cut given previous experience. Back in 2008, VAT was cut from 17.5% to 15% for the period 1st December 2008 to 31st December 2009, a move that brought about an increase in retails sales of just 1%, with 88% of people stating that it had had no impact upon their purchasing decisions whatsoever. Those limited benefits ended up reducing the Government's tax take by £12.5 billion. Moreover, the biggest barrier to spending currently is not an economic one (with many people having used the lockdown to build up their savings), but a psychological one, with much of the public continuing to have worries about catching the coronavirus whilst out shopping. A cut in VAT is hardly likely to allay those concerns. Hence, a reduction in VAT is unlikely to have much of an impact, if any at all. Accordingly, rather than an across the board reduction in VAT, the Chancellor may instead opt in the summer statement to target reductions at specific sectors which are struggling the most, such as hospitality. The British Chambers of Commerce have also suggested a voucher scheme., in which people would be given vouchers to spend in local retail outlets
- The scrapping of the pension triple lock is another suggested idea that is highly unlikely to be adopted, given that its inclusion in the 2017 Conservative Party election manifesto played a large part in Theresa May's then Government losing its overall majority at that election.
- Pensions tax relief changes is an idea that is consistently mentioned ahead of every budget, but never materialises due to its political toxicity. Likewise, it is unlikely to be part of the summer statement.
Focus on Employment
Given that the above measures that have been suggested in advance of the summer statement are either unlikely to be adopted, or are likely to be of very limited effectiveness, the deputy director of the Institute for Fiscal Studies, Carl Emmerson, believes that a VAT reduction should be kept “in the locker for now,” and that “if I was going to do some stimulus measures now I would perhaps look more on the employment side, trying to encourage employers to keep people on or take people on." Indeed, according to the Financial Times, "Rishi Sunak will put jobs at the heart of [the summer statement]....as he tries to avert a post-coronavirus catastrophe, but he has told Tory MPs not to expect big tax cuts to boost the economy."
