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What’s new - The Chancellor of the Exchequer noted that after an initial phase of protection, nine million workers have benefited from the furlough scheme. The government is now moving to the next stage which is to support, create and protect jobs. A phase that could cost around £30bn so just over 1% of GDP.
Support people to find jobs:
New kick-start scheme to create jobs for young people (circa £6,500 per person).
New traineeship (£1,000 per trainee) and apprenticeship (£2,000 per apprentice) schemes.
2. Create jobs:
Further investment in infrastructure (roads, schools, high streets), thanks to an acceleration of £5bn worth of additional investment projects.
To foster a Green recovery, creating a new £2bn ‘green homes’ grant starting from September.
Housing is a key sector for the economy with around 750,000 jobs linked to housebuilding. The government is cutting stamp duty to zero until March next year for the first £500,000 of property sales although the 3% surcharge will still apply for second homes.
3. Protect existing jobs:
A new policy to reward employers who bring back furlough workers via a job retention bonus of £1,000 per employee. Probably the more costly measure (up to £9bn), but less costly than keeping the furlough scheme open indefinitely.
To protect the hospitality and tourism industry which employs circa two million people, the government is reducing VAT from 20% to 5% until 12 January 2021. To help boost demand, a new eat-out-to-help-out discount scheme for customers during August.
Market Reaction – Fairly muted. The package is of moderate size and in line with what was anticipated. Extra issuance might be needed to fund the schemes but pressure on gilt yields should remain limited. Most key measures had been shared prior to the announcement so sterling already priced in the changes with a small rally in the days leading up to the announcement.
Our Take – A decent set of temporary measures with room to do more if the economy does not follow the expected recovery trajectory.
All about jobs: The focus of the new measures is to support, protect and create jobs. It strikes a balance between boosting demand and mitigating lasting scars to the supply side of the economy. The emphasis has shifted away from broad-based guarantees to measures to strengthen the labour market.
A targeted approach: Importantly, the focus is on engineering the biggest “bang for the buck” by supporting sectors that are big employers and/or that have been disproportionately affected by the crisis – ranging from housing and construction to hospitality, entertainment and tourism.
An eye on the public finances – eventually: There is a degree of optionality in part of these fiscal measures. To reduce their cost and allow some flexibility to recalibrate the key parameters, the stamp study and VAT cuts, just like various aspects of the job schemes, are temporary. We’d expect more on the long-term plan for the public finances in the Chancellor’s Autumn Statement.
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