Summer statement: VAT cut and state-subsidised meals risk creating problems later | Business News

The single most welcome measure in the chancellor’s summer statement, so far as businesses will be concerned, was the VAT reduction on food, accommodation and attractions.

It is something the hospitality sector, which has been battered by COVID-19, had been seeking long before the pandemic.

The industry has, for many years, been begging to receive the favourable tax treatment received by its equivalent in continental Europe.

The danger for Rishi Sunak – as with other giveaways, such as the free school meals scheme unveiled in response to the footballer Marcus Rashford’s campaign – is that once these policies are in place, it is difficult to withdraw them subsequently.

Stand by howls of anguish in six months’ time when Mr Sunak seeks to remove his temporary VAT cut.

The chancellor unveiled an "Eat Out to Help Out" discount of up to £10 per head to get people back to restaurants, cafes and pubs;

Key points: All the chancellor’s measures

More intriguing was the ‘eat out to help out’ scheme unveiled by the chancellor.

As Mr Sunak accepted, this is something never tried before in this country, so no one can predict how it will turn out.

One concern, though, is that it will merely bring forward spending on meals out that would have taken place anyway.

And it may even cancel them out: former chief executives of restaurant chains like Pizza Express will testify that, once punters are lured in by vouchers and money-off deals, it is very difficult to persuade them to come back and pay full price again.

The danger is that these schemes will merely tide over the many struggling restaurant businesses up and down the country for a few more months before they finally pull down the shutters in the autumn.

Other measures were well telegraphed.

Mr Sunak accepted that the Job Retention – or furlough – Scheme could not go on forever due to its cost.

Chancellor Rishi Sunak presents his economic stimulus plan to the House of Commons.

Chancellor unveils £1k ‘job retention bonus’

Yet his solution, lobbing employers £1,000 bonuses for each employee retained after returning from furlough, resembles a slightly less costly alternative approach towards keeping down joblessness.

Employers, though, may be tempted to let go employees who have been on furlough and replace them with the 16-24 year-olds whose wages the government plans to subsidise through its ‘Kickstart’ Scheme.

The money doesn’t stop there: employers are also being offered cash to create new apprenticeships. Mr Sunak was too polite to say that this probably will be more effective than the Apprenticeship Levy introduced by his predecessor-but-two, George Osborne, a bureaucratic nightmare that was widely loathed by employers.

That was not the only policy initiative to bring back memories of policy initiatives of past chancellors aimed at solving seemingly-intractable solutions.

The £2bn Green Homes Grant was reminiscent of the loft insulation grants about which Gordon Brown used to regularly drone in his numerous interminable budget statements.

The temporary increase in stamp duty thresholds, heavily leaked, will have some benefits to stimulate growth through what economists call “multiplier effects”.

While being welcomed by homebuyers, it is not without risk, as it could stoke up demand for homes while not adding a single home to housing supply. Worse still, it could create bottlenecks higher up the housing market, where stamp duty kicks in at a brutal rate.

Chancellor Rishi Sunak presents his economic stimulus plan to the House of Commons.

Everyone to get a ‘Eat Out To Help Out’ discount

And it will do nothing to tackle a more intractable problem faced by many trying to get on the housing ladder in the first place – scraping together a deposit when interest rates on savings accounts are negligible.

There were also some striking absences. The biggest was the lack of any action on employers’ national insurance contributions. This statement was supposed to be all about keeping people in employment. So it is odd that the biggest single deterrent to employment – employers’ NICs – was not touched.

A key question many will have, as public sector debt piles up, is how all this will be paid for. This was not addressed because this was not a formal budget statement with no forecasts from the Office for Budget Responsibility.

The chancellor observed that “over the medium term we must and will put the public finances on a sustainable footing”.

But, for now, that is a job for another day.

In the meantime, enjoy your state-subsidised pizzas, curries and burgers.

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