On Wednesday, Rishi Sunak delivered his summer statement. Described as a mini-budget by the media, this was the second of two major economic announcements the government has delivered in the past few weeks, the first being Boris Johnson’s New Deal speech on 30th June. The measures set out by Boris Johnson outlined a £5 billion increase in government spending, which fell far short of the hype he created by comparing his measures to FDR’s New Deal (for comparison FDR’s New Deal cost £ 257billion (inflation adjusted) in 1933. The subsequent criticism of this speech was largely deflected onto Wednesday’s statement, where further measures would be announced. So how do Wednesday’s measures stack up?
The Prime Minister and Chancellor both announced the furlough scheme is to come to an end in October. Rishi Sunak noted rather astutely the difficulty in bringing this scheme to an end, stating “If I say the scheme must end in October, critics will say it should end in November. If I say it should end in November, critics will just say December.” However, this approach does rather unfortunately bluster past the issue that if the virus does not disappear as quickly as the government is predicting, or worse if there is a second wave, then October could be too early to end the furlough scheme after all. Sunak’s observation here is in effect an encouragement or hope that Labour will engage constructively with bringing the furlough scheme to an end at a sensible point.
But when the furlough scheme comes to an end, it will create a cliff edge for businesses, and put at risk every job still protected by it. To avoid that possibility, Sunak also announced a £1,000 bonus for businesses who retain furloughed workers rather than make them redundant. He was rather honest about the inefficiencies in this scheme when interviewed subsequently, admitting that for businesses already planning to bring back workers it amounts to free money. But he was adamant that it will protect enough jobs to make it worth the so-called “dead weight” of the policy.
The property market is changing too, with a green homes grant. This means the government will partially (or in some circumstances, fully) fund projects to make homes more energy efficient, as well as raising the threshold on which stamp duty is charged from £125,000 to £500,000. Currently, there are only a handful of places in the country where a house in a livable condition can be obtained for less than £125,000, so stamp duty, originally only meant to affect people buying expensive houses, was affecting the majority of purchases. This alteration, at an estimated cost of £3.8billion to the state, brings stamp duty back to its original purpose, while stimulating the housing market. Some have criticised this policy for its cap being too high. Overall, this policy has however, received general support from across the House.
The accidental flagship of Sunak’s announcement is the “eat out to help out” scheme. This has attracted the most attention, not only for its slogan that was roundly mocked on social media, but also for its substance. The scheme grants a large number of participating restaurants, on Mondays to Wednesdays in August, to offer a half price meal up to a discount of £10 per person. A gimmick for sure, but nonetheless a popular one; the economic sense behind the move is up for debate, however, with a senior civil servant stating disapproval of the scheme on Thursday morning.
The logic of the policy does unravel somewhat when one considers that many people are avoiding restaurants not because of financial difficulty but because of safety concerns, perpetuated into the summer by the government’s disastrous handling of the pandemic up to this point.
Other smaller spending announcements include the tweaking of VAT, a £2 billion scheme to create job placements for young people and £1 billion on “infrastructure and decarbonisation”. The government estimates the overall cost of these measures to be £30 billion. But, facing one of the largest recessions in human history, and with the spending package announced by Labour during the last recession being worth £570billion (£500billion on a bank rescue package, £50billion state investment in the banks and £20billion of other stimulation in the economy) the spending announced by the government on Wednesday feels rather small.
This Conservative government has, without sacrificing their traditional beliefs on the role of the state, delivered a fiscal stimulus. If £570 billion was not enough to stop mass unemployment in 2009, if Roosevelt’s New Deal, after which these measures are named, was not enough to end mass unemployment in the United States until the Second World War, then it is clear the Chancellor must go further with economic stimulation if this country is to recover financially.
Jack Harrison is a political blogger and student at the University of Cambridge. He was the author of the blog Minority 2017 from 2017 to 2019. He can be found on Twitter @JackH1010.