UK’s ‘mini-budget’ receives mixed response

Government’s attempts to resurrect economy meets varied reception

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July 09, 2020 Categories

UK chancellor Rishi Sunak’s Plan for Jobs scheme has met mixed commentary from market participants impacted by the new measures.

Beginning on July 15 and running until January 12, VAT on food, accommodation and attractions has also been cut to five percent to boost business activity. However, the support favours the hardest hit sectors, says Marvin Rust, head of tax at Alvarez & Marsal.

“Despite the Government’s focus on jobs, without additional measures of support, many sectors will struggle to retain existing staff, let alone bring back all employees from furlough and recruit new colleagues – even with the state bonuses,” Rust said in a statement.

“Although the chancellor talked about payment for the support over the medium term, he did not deliver the psychological assurance to consumers that there would be no tax rises income tax or VAT in this Parliament.”

With the Coronavirus Job Retention Scheme ending in October, a £1,000-per-employee Job Retention Bonus will also be offered to UK employers who keep formerly-furloughed employees in work until January 31, 2021.

“Over the medium term, we must—and we will—put our public finances back on a sustainable footing,” Sunak said.

To further support the hospitality and tourism industries, consumers can “Eat Out to Help Out” at local participating businesses, receiving 50 percent off their meal when they dine between Monday to Wednesday.

The initiative currently does not have a set end date, but a maximum discount of £10 per head—including children—can be claimed back by businesses, who will receive funds within five working days.

Sunak said these measures will support over 2.4m employees across 150,000 businesses, while also encouraging consumers to leave their ‘strict lockdown’ mentality behind. However, there are a number of considerations businesses need to act on ahead of the schemes going live.

Jamie Ratcliffe, head of indirect tax at EY, said in a statement that some businesses—such as cafes and restaurants which operate within shops—may find themselves unwittingly caught in the VAT rules.

“Based on experiences in 2008, the impact to business is much more than a simple change of rate in accounting systems,” Ratcliffe said. “This will cut across the whole end-to-end VAT reporting cycle, processes, systems and data that businesses, however large or small, must adhere to.

“There will be many operational questions including how to treat pre-payments for accommodation and supplies that apply to the rate change.”

When VAT was cut to 15 percent in 2008 to counter the impact of the financial crisis, then-prime minister David Cameron called the two percent discount “an unbelievable and expensive failure.” However, the cut helped fuel retail sales after its introduction, so the current VAT cut may follow suit.

ACCA’s tax policy lead, Jason Piper, called the cut “an admirable attempt to stimulate demand” in the short-term, but noted that all the incentives introduced by the Chancellor will have an administrative impact in the medium to long-term—a perspective echoed by the ACCA’s chief economist, Michael Taylor.

“Even if these support measures do not mitigate the risk of the virus itself, it remains to be seen if they will be sufficient or effective in stimulating demand and limiting the inevitable rise in unemployment in coming months,” Taylor said in a press statement.

“Revival needs resilience, we await with interest how this will relate to the Autumn budget.”

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