Getting the UK economy moving again: what stimulus measures might we expect?

With the UK Chancellor, Rishi Sunak, now contemplating how to get the UK’s economy moving again post-lockdown, partners at Saffery have been thinking about the stimulus measures that the government might be considering.

On VAT

Sean McGinness, an Edinburgh-based partner and VAT expert, comments: 

“There has been talk of a significant reduction to the standard rate of VAT, but a substantial VAT-cut is not a possibility whilst the UK is still governed by EU VAT law. The lowest that the standard-rate of VAT can go is 15%. 

“The German government is cutting its VAT rate from 19% to 16% from 1 July to 31 December. It is also cutting its reduced rate from 7% to 5%. A similar reduction in UK rates is perhaps more feasible.

“One possibility is that any VAT stimulus will be targeted at the sectors that need it most, so we may see a temporary reduced rate for restaurants, cafes and perhaps the hospitality and hotel sector more widely – from 20% to, say, the UK reduced rate of 5%, which will improve margins whilst such businesses have reduced capacity. It is very common across the EU for these sectors to benefit from a reduced rate and industry bodies have been calling for a reduction in the applicable rate for many years.”

On business investment and regional development projects

Alistair Hunt, a Peterborough-based partner, comments: 

“Stimulus measures should focus on tax reliefs to encourage investment in businesses; for example, to improve automation and to encourage capital expenditure and research & development. Support for new business ventures and start-ups which will provide job creation going into recession. Any measures that manage the burden of staff costs will really help to encourage businesses to retain people as they get back on their feet.”

Jamie Lane, a Bournemouth-based partner, comments:  

“The Coronavirus pandemic has highlighted the fact that we have an over-reliance on imported labour, especially in agribusiness, and this has had an impact on productivity. We need to be able to incentivise business to invest in new technology to reduce this reliance, especially in light of Brexit.

“The government will also need to think regionally rather than nationally: with many office workers potentially not returning to the office in the same way they left them, do projects like HS2 continue to have the same investment case as before the pandemic? Could the same financial investment be used for regional development instead?”

On the labour market

Simon Kite, a partner in Saffery’ Manchester office, comments:

“Tax incentives that can stimulate job creation and prevent a huge spike in unemployment are going to be very important. We could see further promotion of apprenticeships and increased grants for skills training so that staff made redundant can re-train in specific sectors: those with most growth potential, such as digital, healthcare and life sciences, for example.

“We may also see changes to how the Apprenticeship Levy can be applied, as it is often the case that funds raised through the Apprenticeship Levy are never spent, due to restrictions on the type of training that they can fund. Unspent Apprenticeship Levy can be shared/gifted to other companies if not used, so that may become more common place too.”