The FTSE 100 has creeped up slightly following Rishi Sunak’s post-coronavirus budget but still remains down 0.19 per cent.
London’s blue-chip stock market reacted meekly to the Chancellor’s spending bonanza aimed at creating jobs for young people after lockdown.
The index was down 11.50 points to 6,178.40 immediately after the minister finished in the House of Commons.
Ahead of the Chancellor’s mini-budget, which was trailed by announcements of a stamp duty holiday and VAT cut, the market fell 35 points to 6,154 this morning.
Markets around the globe also fell overnight amid fears the recession caused by the pandemic will be deeper than forecast and the expected rebound could be weaker than expected.
The FTSE 100 opened down today as Chancellor Rishi Sunak tries to invigorate the economy in his budget today
As well as the stamp duty announcement, which would save buyers £2,460 on a £248,000 property – the national average – Mr Sunak said today that VAT is to be slashed on food, accommodation and attractions in a major boost for hospitality firms hit hard by the coronavirus pandemic.
The Chancellor announced that tourism and hospitality VAT will be cut from 20% to 5% for the next six months.
The move will cut the tax on eat-in and hot takeaway food from restaurants, cafes and pubs, which have started to reopen over the past week.
As well as the stamp duty announcement, Mr Sunak said today that VAT is to be slashed on food, accommodation and attractions in a major boost for hospitality firms hit hard by the coronavirus pandemic
Mr Sunak also said the move will benefit accommodation in hotels, B&Bs, campsites and caravan sites, while attractions such as cinemas, theme parks and zoos will also see the tax cut.
It will be reduced from Wednesday July 15 until January 12, he told MPs.
He added: ‘This is a £4 billion catalyst for the hospitality and tourism sectors, benefiting over 150,000 businesses, and consumers everywhere – all helping to protect 2.4 million jobs.’
The Chancellor also announced plans to give people a 50% discount, up to £10 per head, to eat out in restaurants in August.
Russell Nathan, senior partner at accountancy firm HW Fisher, said: ‘Our restaurants, pubs, shops and hotels are struggling.
‘This is a timely announcement from Government as businesses are in desperate need of a clear action plan.
‘It is vital we see the hospitality industry back up and running, and these measures announced today will provide an essential lifeline for many UK businesses.’
The Chancellor announced that tourism and hospitality VAT will be cut from 20% to 5% for the next six months
David Weston, chairman of the Bed & Breakfast Association, said: ‘We are delighted by the VAT cut on behalf of our larger members, guesthouses and small hotels who are VAT registered.
‘It will help stimulate demand and, once our borders open to incoming tourism, will also help UK tourism overall as Britain’s VAT rate has been amongst the highest of our international competitors.’
Joss Croft, chief executive of UKinbound, a trade association representing the inbound tourism industry, said the VAT cut and discount for eating out will ‘deliver immediate positive impacts’.
But he warned that many firms involved in inbound tourism are ‘on the brink’ and will not benefit from those measures.
‘Longer-term support will still be required for these businesses,’ he added.
The Chancellor also announced plans to support businesses bringing staff out of furlough through a new Jobs Retention Bonus Scheme.
Mr Sunak said the Government could pay up to £9 billion to businesses, as part of the programme which will see firms paid £1,000 per employee brought out of furlough, in a move which will particularly benefit the hospitality sector.
Mr Sunak acted on stamp duty after leaked reports revealed he was considering making a cut in his main Budget this autumn.
Economists and property experts warned the delay could freeze the housing market, with buyers putting off purchases until the autumn to avoid a tax bill running into thousands of pounds.
The revelation about the Chancellor’s plans has sparked anger in the Treasury and Downing Street, and a leak inquiry is underway. Exact details of Mr Sunak’s plan will only be revealed on Wednesday.
The move could save buyers thousands of pounds though exact details of Mr Sunak’s plans will be revealed on Wednesday
On Tuesday it remained unclear whether the exemption would apply to all properties or whether it would be restricted to the residential sector or even just so-called ‘affordable homes’.
First-time buyers are already exempt on the first £300,000 of a purchase. Raising this to £500,000 would save them up to an additional £10,000.
The Treasury declined to comment on the impact on higher rates of stamp duty, which are currently two per cent on the cost above £125,000, five per cent above £250,000, ten per cent on the value above £925,000 and 12 per cent above £1.5million.
Landlords and those buying second homes pay an additional three per cent. The temporary cut in duty is designed to help revive the market, which remains in a fragile state after being shut down at the height of the lockdown.
Treasury officials believe it could spark a much wider economic recovery, with many expected to use the tax savings to invest in their new home.
Stuart Adam, of the Institute for Fiscal Studies, said history showed that temporary cuts in stamp duty could provide an ‘effective fiscal stimulus’ to the economy.
He added: ‘If the holiday is explicitly temporary then it can persuade people to bring forward moves that they might otherwise have delayed. If you get people buying houses again then it can pull a lot of other economic activity with it, such as spending on refurbishment, curtains, carpets, furniture, DIY and so on.
‘It doesn’t target the sectors hardest hit by the lockdown, such as the hospitality sector. But it might help the wider economy. If you want to do a fiscal stimulus via tax cuts then a temporary cut in stamp duty is fairly effective.’
In 2018-19, properties costing up to £500,000 accounted for 925,000 residential sales, or roughly 90 per cent of all transactions.
Those purchases raised £3.2billion for the Treasury, suggesting a six-month tax break would cost about £1.6billion.
However the timing is likely to spark a debate. Treasury officials acknowledge they have limited data about the state of the housing market, which was only allowed to start trading again in mid-May.
Former chancellor Philip Hammond warned that a temporary cut in stamp duty would only bring forward economic activity, rather than increase it overall.
Rightmove property expert Miles Shipside urged the Chancellor to also act on the mortgage drought hitting first-time buyers.
The move is also set to act as a boost for the housing and property market, which has been impacted by the coronavirus pandemic
He said: ‘There’s currently record housing demand but the market also needs the ability for lenders to extend the availability of low-deposit mortgages, vital to healthy first-time buyer volumes that help drive the rest of the market.
‘A stamp duty holiday without better mortgage availability isn’t really helpful for potential first-time buyers who are already mainly exempt from it anyway.’
Labour is set to urge the Chancellor to develop a ‘flexible’ furlough scheme to support businesses that are forced to close during local lockdowns
Shadow chancellor Anneliese Dodds will also press Mr Sunak to spell out how he will fund his coronavirus recovery package without hiking taxes or slashing public services.
Mr Sunak will on Wednesday unveil a £2 billion scheme to subside six-month work placements for under-25s among the measures in his Covid-19 recovery package.
But the job retention scheme that has seen the Government pay up to 80% of furloughed workers’ salaries will be wound up and is due to come to an end in October.
Anneliese Dodds, seen speaking to the Chancellor Rishi Sunak on Tuesday, has suggested a ‘flexible’ furlough scheme could ‘avoid additional floods of redundancy notices’
Ms Dodds is expected to tell Mr Sunak that the at least £27.4 billion spent to support 9.4 million jobs ‘must not have merely served to postpone unemployment’.
‘The scheme must now live up to its name, supporting employment in industries which are viable in the long term,’ the Labour MP is likely to add during their House of Commons exchange.
‘And we need a strategy for the scheme to become more flexible, so it can support those businesses forced to close again because of additional localised lockdowns.
‘There is still time to avoid additional floods of redundancy notices.’
Ms Dodds is also set to warn that increasing taxes during the recovery and cutting back on public services ‘will damage demand and inhibit our recovery’.
‘The Tory manifesto committed to no rises in income tax, National Insurance or VAT and therefore it is for them to set out how any additional spending will be paid for,’ she should add.
‘It’s the Chancellor’s job to make sure the economy bounces back from this crisis so there is money in the coffers to protect the public finances.’
Government will pay £2bn in wages for 300,000 16-24-year-olds to keep them off the dole as Rishi Sunak puts jobs at the heart of his mini-Budget today
Wednesday’s mini-Budget will see the Chancellor put jobs at the heart of his £2billion scheme to prevent a surge in youth unemployment.
Rishi Sunak will unveil a radical plan designed to keep up to 300,000 young people off the dole as the Covid-19 recession bites.
The Kickstart initiative will see the Treasury pay the wages of thousands of youngsters if firms agree to hire them for six months.
The Chancellor is set to announce his mini-budget which is believed to put jobs at the heart of his £2billion scheme to prevent unemployment in young people
Businesses will have to agree to provide an element of training and ministers hope that some of the youngsters will be kept on at the end of their stint.
In return, firms will receive what Treasury sources acknowledged amounts to ‘free labour’.
The scheme is the centrepiece in a financial statement that will focus on jobs.
But No 10 moved to allay tax rise fears by saying the Government would stick to its manifesto commitment for a ‘triple lock’, meaning no increases in the headline rates of income tax, national insurance and VAT before the election.
Ministers fear the lockdown will spark redundancies and last night the Chancellor said: ‘Young people bear the brunt of most economic crises but they are at particular risk this time because they work in the sectors disproportionately hit.
‘So we’ve got a bold plan to protect, support and create jobs.’
Today’s mini-Budget is designed to steady the economy as it emerges from lockdown. There will be no attempt to balance the books, which have been plunged deep into the red by the pandemic.
Mr Sunak is not even expected to publish a forecast for the public finances, which economists fear could show a budget deficit of more than £300billion – twice the level seen at the height of the 2008 financial crisis.
Instead, the Chancellor will focus on a package of spending measures and tax cuts designed to prop up jobs and spark an economic recovery.
Mr Sunak’s mini-budget is set to reveal how Britain will attempt to steady its economy as it comes out of lockdown forced by the pandemic
But yesterday there were signs that Mr Sunak’s big-spending instincts are alarming some Tories.
Sir Edward Leigh, a former chairman of the Common public accounts committee, told Mr Sunak he wanted to hear ‘less about high-spending lefties like President Roosevelt and more about good Conservatives like Margaret Thatcher’.
In a separate report, six former No 10 advisers called for ‘sweeping reform’ of the tax system and warned excessive government debt could halt recovery.
The Kickstart scheme, which will run until at least the end of 2021, is to be open to people aged 16 to 24 who are claiming Universal Credit.
They will receive the minimum wage, paid by the state, to work 25 hours a week. Their employers’ national insurance and pension contributions will also be paid.
And firms will receive an ‘administration fee’ of around £1,000 per employee for arranging the placement.
It will start getting under way next month, with the first placements expected to begin in the autumn.
The Treasury announced it has a moral responsibility to do whatever it takes to prevent young people facing unemployment during this crisis
A number of large employers, including BT and Sainsbury’s, have already signed up.
A Treasury source said business had a ‘moral responsibility’ to do what it could to help youngsters avoid unemployment.
The scheme is likely to revive memories of the Youth Opportunities Programme and its successor Youth Training Scheme in the 1980s, which critics said were used as dumping grounds to keep unemployment down.
But Treasury sources last night insisted that businesses would be expected to offer ‘good quality’ training to those they decide to take on.
Mr Sunak is also expected to expand the apprenticeships programme, where more dedicated training is expected.
The British Chambers of Commerce last night welcomed the Kickstart scheme, saying firms were ‘ready to work with government’ in order to help youngsters entering the world of work at this ‘challenging time’.