9th July 2020

Columbia Threadneedle: Summer statement round-up

The UK government has unveiled its latest package of support measures[1] aimed at boosting consumer demand and helping businesses recover quickly from the Covid-19 pandemic.

So far this year, chancellor of the exchequer, Rishi Sunak, has introduced a furlough scheme which has seen the government covering salary costs for around nine million employees, with further support for almost three million self-employed people. He has also cut business rates for thousands of firms and provided loans and grants to businesses to help them cope with the closures and trading difficulties caused by the UK’s lockdown policies.

In his summer statement this week, Sunak announced a further wave of measures targeting sectors such as hospitality, tourism and housing that have been hit hardest by the pandemic over the past few months.

Stamp duty threshold lifted

The policy change with the potential to have the greatest financial impact on households is likely to be the decision to raise the starting threshold for stamp duty to £500,000 from its current £125,000. This will apply immediately to residential property purchases in England and Northern Ireland and will last until the end of March next year.

Sunak pointed out that housing market activity has slowed markedly during the lockdown period with prices down year-on-year in June for the first time since 2012, according to figures from Nationwide. The idea is that the stamp duty cut will encourage people to get moving again: on a £500,000 property the new system will mean buyers pay £15,000 less tax. 

However, it is worth noting that a similar stamp duty break introduced following the financial crisis of 2008 saw sellers increase prices in some instances to account for buyers’ lower transaction costs. There are also concerns that the March 2021 cut-off could lead to a cliff-edge effect as buyers rush to complete transactions ahead of the deadline, with activity then tailing off. 

Help for hospitality and tourism firms

Businesses such as hotels, restaurants and pubs have been among those that have suffered most as a result of the pandemic, with the majority of them having to close their doors throughout April, May and June. In response, the chancellor has announced two policies aimed at boosting demand in the hospitality and tourism sectors:

• On Mondays, Tuesdays and Wednesdays in August, the “Eat Out to Help Out” scheme will entitle diners to a 50% discount, up to a limit of £10 per person, on meals at restaurants, cafés or pubs – this doesn’t include alcohol, but does includes kids’ meals.

• From 15 July until 12 January 2021 VAT will be reduced from 20% to 5% on food and non-alcoholic drinks sold by restaurants, pubs and cafés, as well as on accommodation and admission to tourist attractions. The exact details of what will and will not qualify for this reduced rate will be published in the next few days.

Domestic energy efficiency

Sunak is also providing incentives for property owners to increase the energy efficiency of their homes: the Green Homes Grant scheme will supplement spending on the likes of loft or cavity wall insulation projects up to a value of £5,000 per household. The chancellor also announced a number of measures aimed at reducing the carbon footprint of public sector buildings.

Simon Bond, Director, Responsible Investment Portfolio Management at Columbia Threadneedle Investments, said: “While we welcome measures that address environmental issues, such as the £2 billion green homes grant, there were no additions to existing policies for retrofitting green infrastructure, or supporting grants and subsidies at the local level for green infrastructure and the transition to green energy sources.

“We would have also welcomed thoughts or announcements on Green or Sustainability Gilts, the proceeds of which can be used towards environmental and social projects. Ultimately the widening of attention on the social aspects is an important one, but this should supplement, not supplant, the need for longer-term sustainable investment in green infrastructure and jobs.”

Job retention bonus

To address the issues that could be caused by the withdrawal of the furlough scheme at the end of October, the government will pay a £1,000-per-person bonus to employers which bring staff back off furlough and keep them employed until 31 January 2021. One of the government’s biggest concerns at present is that businesses may make large numbers of people redundant once state furlough payments to inactive workers are brought to a halt. 

What does it all mean for UK-listed companies?

According to James Thorne, UK Equities Portfolio Manager at Columbia Threadneedle Investments, the package announced by the Chancellor is broadly sensible in its focus over the next three to six months, but is a drop in the ocean compared to the size of the crisis. Moreover, businesses will need more support next year if they can’t get back to pre-Covid circumstances or face administration in the new year.

He added: “The apprentice scheme is very welcome; however it would need to be on a huge scale to offset the job losses elsewhere in the economy,” he said. “Investing through hiring of apprentices needs to be combined with much broader support for businesses, and this has been lacking for decades in the UK. 

“Other incentives outlined today are intended to help the restaurant trade adjust to the social distancing measures and change the behaviour of people too scared to go out, but what about other areas of the economy such as gyms, theatres and sporting facilities? And if unemployment rises, will it be enough to offset people’s desire to save?”

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