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08 July 2020

Mini Budget a Lifeline but Questions over Treasury Finances Mount

James Rowbury, Investment Research Coordinator, Redmayne Bentley


Today the Government announced a flurry of new measures aimed at supporting, creating and protecting jobs in the UK. The Chancellor, Rishi Sunak, convened a so called ‘mini-budget’ to help stimulate economic growth and transition people back to work from furlough and unemployment.

This transition comes in the form of a job retention bonus if employers re-integrate furloughed staff back into the workforce, from November 2020 to January 2021, with the Chancellor indicating that the furlough scheme itself is likely to end towards the end of 2020. 

This is likely to be welcomed by employers and employees alike, with firms now incentivised to return furloughed staff to the workplace, easing unemployment woes. Further help for people aged 16-24 is being implemented through the Kickstart scheme, which will provide a welcome boost to young people currently facing an increasingly bleak and ailing job market. 

However, as always, employment is dictated by demand for goods and services and the degree to which job stimulation schemes will be successful is heavily dependent on how quickly consumers return to their usual spending habits.

The housing market was also a hot topic in the Chancellor’s speech, where he announced the immediate elimination of stamp duty on houses purchased under a £500,000 threshold. This should alleviate fears of a housing market freeze, with many concerned that a stamp duty cut implemented later in the year during the Autumn budget would halt the purchasing intentions of buyers, encouraging them to delay the process until it was tax-efficient to do so. 

With the elimination of stamp duty, the furlough scheme and incentives in place to keep employees on the payroll, we would expect to see a bounce in the housing market as buyers rush to take advantage of cheaper house prices. 

However, attention will soon inevitably turn to how far the Treasury’s balance sheet can stretch. With the UK’s COVID-19 support and stimulation packages set to cost the government over £300bn, due to public spending hikes and sharp declines in business activity, tax increases are likely to become an unwanted, but necessary reality for both businesses and consumers. While this is likely to take time to implement, consumers may start to feel the pinch after the short-term stimulus packages end and public spending is tightened. 
 
Mini Budget a Lifeline but Questions over Treasury Finances Mount
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