Britain’s finance minister promised an additional £30 billion ($38 billion) to head off an unemployment crisis on Wednesday, funnelling money to employers, homebuyers and beleaguered hospitality firms to drive a recovery.
Rishi Sunak, who was already on course to take state borrowing to World War Two levels with £133 billion of initial coronavirus emergency measures, said he would return the public finances to a sustainable footing over the medium term.
But the former Goldman Sachs analyst promised to press on with using the power of the state to shore up the economy, which has forced his Conservative Party to suspend its traditional pro-market instincts.
“I want every person in this House and in the country to know that I will never accept unemployment as an unavoidable outcome,” Sunak told parliament on Wednesday.
The world’s sixth-biggest economy shrank by 25 per cent in March and April and could be heading for its biggest fall in 300 years in 2020, with the unemployment rate on course to more than double to about 10 per cent, according to official projections.
Under a new bonus plan, employers will be paid £1,000 ($1,256) after the furlough scheme expires at the end of October for every worker who returns to their job, provided they are kept on through to the end of January.
With more than 9 million jobs covered by the scheme, the cost of the bonuses could be as much as £9.4 billion.
To help hospitality and tourism, hampered by social distancing rules, Sunak announced a cut in value-added tax for the sector to 5 per cent from 20 per cent for six months.
People eating out in August between Monday and Wednesday will receive a 50 per cent discount of up to 10 pounds each, paid for by the government.
Shares in pubs and restaurant firms rose.
With close to 45,000 confirmed coronavirus-linked deaths, Britain has been hit harder by the pandemic than any other European country, leaving many people reluctant to return to life as before.
FOCUS ON YOUNG WORKERS
Sunak’s plan includes a £2 billion ($2.5 billion) fund to create six-month work placement jobs for unemployed 16-24 year-olds and more government-funded apprenticeships.
A further 3 billion pounds will be spent on improving the energy efficiency of homes and public buildings, which would support more than 100,000 jobs.
The £30 billion cost of the plan includes around £5.6 billion in accelerated infrastructure spending announced last week by Prime Minister Boris Johnson.
Some employers had urged Sunak to go further by cutting the social security contributions they must pay for their workers.
In a bid to breathe life into the housing market and the broader economy, Sunak raised the lower threshold for a tax on property purchases to £500,000, four times its current level, with immediate effect until March 31.
Economists said the plan was unlikely to accelerate Britain’s recovery from the crisis.
“Overall this wasn’t a massive fiscal package, with other countries like Germany announcing much larger fiscal packages,” Jing Teow, an economist at PwC, said.
As well the uncertainties about how the pandemic will proceed, Sunak has to contend with the possibility London and Brussels fail to agree a post-Brexit trade deal by the end of this year.
“The chancellor is likely keeping his powder dry until the autumn,” Teow said, referring to a formal budget statement Sunak is due to deliver in late 2020.
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