MNI POLICY: UK Sunak Unveils Tightly Targeted Stimulus Package

-Sunak Says New Measures Worth "Up to GBP30 billion"

-Will Look At Debt-Interest Fiscal Rule "Keenly"

By David Robinson

     LONDON (MNI) - Government stimulus for the hard-hit UK economy could total

as much as GBP30 billion, some 1.5% of GDP, Chancellor Rishi Sunak said in his

Summer Statement Wednesday, although the actual cost is likely to be markedly

less.

     Sunak did not introduce any new fiscal rules in his speech but in response

to a parliamentary question said he would look "keenly in coming months" at a

debt-interest rule and pledged to return finances to a sustainable basis in the

medium term.

     Debt-interest costs have fallen in line with lower interest rates, despite

the surge in debt and, as MNI has reported, a debt-to-revenue measure is likely

to be one of Sunak's fiscal targets to be unveiled in the Autumn. 

     The headline grabbing measures in Sunak's Summer Statement were a value

added tax cut for the hospitality sector, vouchers for eating out, a steep

increase in the threshold for the property transaction tax and a bonus for those

employers who take their workers back from the furlough scheme. 

     --JOBS SUPPORT

     Sunak said that the package was targeted at supporting jobs, with both the

OBR and Bank of England expecting a sharp rise in joblessness.

     He spelled out plans for a GBP1,000 per employee Jobs Retention Bonus,

which would be worth up to GBP9 billion but only if all those currently on

furlough returned to their jobs.

     There was also a GBP3 billion plan for green jobs and the VAT cut for

hospitality, along with a property transaction cut.

     "Stamp duty cut. Meals out cut .. all part of our Plan for Jobs worth up to

GBP30 billion," Sunak said.

     --TARGETED VAT CUT

     The VAT cut, which kicks in from next Wednesday and runs through January

12, will see the rate fall to 5% from 20% in the targeted hospitality and

tourism sectors.

     "This is a GBP4bn catalyst for the hospitality and tourism sectors," Sunak

said.

     The threshold for stamp duty, the tax on property transactions, is being

raised immediately from GBP125,000 to GBP500,000 pounds until March 31 2021. 

     Prior to his announcement there had been some speculation about Sunak

springing a surprise with either a wider VAT cut or a retail voucher scheme, but

the measures he unveiled were tightly targeted.

     Rather than a voucher scheme Sunak unveiled a discount of up to GBP10 per

head, for any meals eaten out in August from Monday to Wednesday, with the cost

clearly indeterminate due to uncertainty over its impact on behaviour.

     The OBR will publish its assessment of the fiscal risks to the UK on July

14.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

[TOPICS: M$B$$$,M$E$$$,MFB$$$,MGB$$$]