Chancellor’s summer economic statement: Experts’ reaction

July 10, 2020

Bristol accounting and legal experts have broadly welcomed the Chancellor’s measures to boost the economy – but fear some may do more harm than good.

David Gage, pictured, director, business tax at accountants Smith & Williamson in Bristol, said the cut in VAT from 20% to 5% until January 12 next year for hospitality industry was a vital boost for businesses but was likely to have little impact on consumer demand. 

“It may see an uptick in consumer spending, but the scale of this uptick will be in part down to the businesses themselves,” he said. “Based on previous VAT rate cuts, it is possible businesses will not pass on the savings to the end consumers and instead will pocket the 15 percentage points cut to increase their own business margins.

“For instance, a coffee priced at £3.80 before the cut should see a 47p reduction being passed to the customer. A business may choose to maintain that original price to try recoup any loss of earnings since the pandemic, or simply to save time and expense of changing internal pricings and point-of-sale systems.

“While the VAT cut will be welcome news for many businesses hard hit by the Covid-19 pandemic , the hidden costs to the cut may prove to be a headache for some – especially for those whose business didn’t operate during the 2008 VAT cut.”

Karen Kirkwood, pictured, accountancy group EY’s head of tax in the South West, said the largest impact was to address those fearing the effect of ‘furlough cold turkey’, or the young facing a troubled job market. 

“With a grant of £1,000 per furloughed employee retained through to end January next year, this element of the Chancellor’s help may be small compared to the salary costs (effectively just over £300 per month), but will be welcome nonetheless,” she said. 

“Whether this is enough to stop redundancies is yet to be seen. Also, this scheme may leave a sour taste in the mouth for those businesses that have struggled on without furloughing workers and be seen as unfair in relation to those who worked throughout the lockdown.

“For those entering the job market, the Chancellor’s Kickstart scheme is set to attract up to 400,000 young people, who companies can take on, with the government grant paying the minimum wage for six months.”

Matthew Germain, pictured, environment partner at legal services firm Osborne Clarke in Bristol, welcomed the £2bn green homes grant and the £1bn funding for energy efficiency in the public sector as “very positive from a UK decarbonisation perspective”. 

He added: “Tackling emissions from buildings has not previously been given the attention it requires relative to its carbon intensity. Previous government schemes, like the Green Deal, were over-engineered and lacked credibility.

“On the face of it, what has been announced seems straightforward and clear and for that many key stakeholders, like product suppliers, housebuilders, energy companies and funders, will be pleased.

“The challenge and potential downside will come if demand quickly eats up the central budgets and creates a temporary boom which can’t sustain itself.

“The government needs to be in energy efficiency for the long haul.”

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