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Expert Insights: The Chancellor’s economic statement

Our experts have their say following the Chancellor’s economic Statement delivered to Parliament earlier today.

Heather Powell, Partner, Head of Property & Construction

Construction companies will get £1,000 per new trainee, £2,000 for new apprentices under 25, and £1,500 for apprentices over 25 – but where is the funding for the colleges needed to provide the day release places for these employees? Do they have the capacity to take them on in September; an issue exacerbated if social distancing measures are still in place? We need joined-up thinking here.

The Chancellor has given nothing to landlords of commercial premises today and they are again the ignored provider of a critical resource.

Many property investors have received no rent from tenants in the retail, leisure and hospitality industry since December 2019. All leisure and hospitality businesses need premises and if the landlord is about to appoint liquidators the restaurants and pubs being supported by the “Eat out to Help out” discount may find they have a short-term future. Landlords who may miss out on 75% of their income for the year may be forced to appoint receivers and the buyers of distressed property will be looking for quick returns, not the long-term regeneration of our high streets. The recently announced plans to relax our planning rules will only encourage this behaviour.

Alan Pearce, VAT Partner

The reduction in the VAT rate for hospitality and tourism to 5% will equate to a price reduction of 12.5% if the rate cut is passed on in full.

The reduction to 5% is in line with EU rules that allow a reduced rate to apply on these types of services.

The Chancellor specifically mentioned food, so the reduced rate is unlikely to apply to alcohol.

Reduced rates of VAT for the hospitality sector have historically applied in many other EU member states, notably Ireland which reported an increase in consumer spending when this was first introduced. The rate cut, together with the £10 “Eat out to Help Out” discount, will be welcome measures for our struggling restaurants, cafes and bars.

Mark Hart, Partner

While the VAT cut for the hospitality sector is welcome, the Chancellor missed an opportunity to help the charitable sector with a similar cut to VAT for services provided to those organisations.

Irrecoverable VAT costs the sector approximately £1.5bn a year. A cut to VAT for registered charities would have been a tangible way to help a sector whose income is expected to fall by £12bn this year. The Chancellor missed an opportunity to help jobs in this vital part of our economy.

Genevieve Morris, Head of Corporate Tax

The VAT cut for specific industries was widely expected and welcomed, but it’s now a case of watch and see whether it is the consumer that benefits or the businesses themselves. The indication from the Chancellor’s statement is that he expects this to reduce prices and encourage spending, but many businesses that have huge losses over the past few months may use this to boost profits, by keeping headline consumer prices the same, and pocketing the VAT saving – and who can blame them if they did?

Sean Randall, Stamp Duty Partner

The much-anticipated Stamp Duty holiday has started. A saving of up to £15,000 on every house purchase will reinvigorate the market. But those acting with their heads rather than their hearts will probably wait to see if there is an expected fall in house prices. There will certainly be one when the holiday ends.

Rick Behan, Partner and tech industry expert

The new Kick-Start scheme announced by the Government today offers incentives for the tech industry to move away from the traditional, more commonly used freelance model when hiring young developers and specialists, to an employment model. The scheme covers the cost of 16-24-year olds employed into new jobs for the first six months, together with a contribution towards the business overheads for the same period. Businesses in the industry safeguard cash in the short-term, extending the funding runway, while removing intellectual property risk, which can arise from the use of freelancers.

 

Employers in the sector should be aware of the possible restriction on the ability to claim research & development tax credits against these employee costs, while there is also the issue of additional employee/employment legislation to navigate.

Would you like to know more?

If you have any press queries, please contact David Barzilay whose details are to the right.

 

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