The July Fiscal Statement – What to look out for

By June 22, 2020 UK

By Neeraj Shah

As the country emerges from lockdown the focus now turns to how the Government will kick-start the economy. The coming weeks will see the Prime Minister deliver a speech before the end of June followed by the Chancellor delivering a July statement. The statement is not expected to be an emergency budget but rather a ‘fiscal statement’ with a full array of stimulus measures now expected in the autumn, with Rishi Sunak keen to understand the full extent of economic damage that the COVID-19 pandemic has caused.

But what can we expect from this July statement at a time when parts of the economy will still remain in some form of lockdown, and with a fully functioning Test and Trace system yet to be delivered? Recent press reports indicate that with so much uncertainty, “not many decisions have been made”, but speculation over the last few months as well as rhetoric at the daily press conferences does give us some clues.

Firstly, with the UK facing mass unemployment, expect the statement to outline plans to assist with training, apprenticeships and retraining the workforce. Indeed, the Prime Minister went as far as promising an apprenticeship to every young person during a daily press conference this month.

Secondly, expect there to be a focus on infrastructure investment, particularly on projects deemed to be ‘shovel-ready’. In a letter dated 10th June, Communities Secretary Robert Jenrick wrote to mayors and 38 Local Enterprise Partnerships (LEPs) asked for ideas on projects that would create jobs and could be completed within 18 months. The publication of the National Infrastructure Strategy, setting out capital spending over the course of this parliament, has been delayed and may well be repackaged as part of July’s announcement. Infrastructure investment will likely focus on areas which will drive productivity – including broadband and transport infrastructure.

Third, July’s statement will outline measures for a ‘green recovery’ and take the UK towards its target of net zero emissions by 2050. Offshore wind, carbon capture and electric vehicles are expected to be beneficiaries.

Speculation has also been rife as to whether the Chancellor will cut VAT in the hospitality and tourism sector to stimulate consumer spending and potential plans to break the pensions ‘triple lock’.

Some of the spending will no doubt be targeted at the ‘red wall’ constituencies which the Conservatives won off Labour at last December’s election. The Government still appears keen to adhere to its ‘level up’ agenda even though it faces a huge deficit for the current financial year.

The Prime Minister’s speech and the Chancellor’s forthcoming statement come after a challenging time for the Government in which their response to the pandemic and its fallout has come under sustained criticism. The past few weeks have also seen a remarkable increase in grumblings amongst Conservative backbenchers with the 1922 Committee urging the Prime Minister to listen to MPs amid concerns that he has become overly reliant on a small cadre of advisers. Already, supposed plans to relax Sunday trading laws have been rejected by a group of 50 Conservative MPs who have said they will vote against them.

At the same time, the measures the Treasury has introduced and the Chancellor’s assured performances have seen his popularity sky-rocket. The July announcement and Autumn Budget that follows will be a test of the Chancellor’s popularity especially as the latter is expected to see some form of tax rises and cuts to public spending. The Chancellor is in an awkward position of needing to outline measures which will stimulate the economy but also deal with the very high levels of debt the Government has accumulated in its response to the pandemic.

These next few weeks will be positioned as the Government ‘taking back control’, but whether these measures will be enough to wean businesses and individuals off Government support and kick-start an economy that has undeniably changed to the one pre-lockdown remains to be seen.