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What the chancellor's summer statement means for savers and investors

We look at what Rishi Sunak's VAT cuts and subsidies could mean for the hospitality sector, and what changes to stamp duty could do for housebuilders.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

The objective of the chancellor’s £30 billion “Plan for Jobs” statement to Parliament is, as it says on the tin, to limit the number of job losses. The focus is on losses that could occur when the furlough scheme winds down towards October, as well as the 700,000 school and university leavers entering the employment market for the first time.

Whether his efforts to subsidise jobs are successful will depend on employers believing they can create genuine, profitable roles.

It’s worth noting the Treasury’s additional £30billion is dwarfed by the size of the chancellor’s existing interventions. According to Oxford Economics, yesterday’s announcements will likely take the deficit to £300bn this year. That is equivalent to some 12% of GDP, slightly larger than the 10.2% of GDP the Office for National Statistics says it reached during the financial crisis.

With the possible exception of the stamp duty holiday on the first £500,000 of any house purchase, introduced for any transactions exchanging from today until January, the Plan for Jobs has only limited implications for investors.

The UK remains a problematic economy bedevilled by uncertainty over the Government’s handling of the coronavirus, ongoing social distancing measures, massive levels of public spending and, to some extent, the effect of Brexit.

Thanks to the huge interventions of the Government and the Bank of England, the amount of money in the economy is growing at five times the usual rate – the fastest since Henry VIII was on the throne.

Investors and business will have to wait until the Autumn and the full Budget for more substantive measures which might put this money effectively to work and restore growth and opportunity to the economy.

A much needed boost for hospitality

Nicholas Hyett, Equity Analyst

A sector seeing tailwinds much sooner than Autumn is hospitality, where the combination of the job retention bonus, cut in VAT and government subsidy for restaurants will have a positive impact.

Restaurants and hotels are labour intensive and furloughed large numbers of staff – Wetherspoon’s for example furloughed 43,000 employees. The government looks set to pay hefty bonuses to employers for staff that are brought back into work, which will be a useful cash injection for many businesses with large payrolls.

A temporary VAT cut will also help to drive demand and/or boost margins in the sector, offsetting some of the extra costs associated with social distancing requirements.

The government’s “eat out to help out” scheme will attract headlines, and should give consumer spending a bit of a boost in early August.

It’s no surprise to see shares in Restaurant Group, Whitbread and other leisure companies react positively to the statement.

What the announcement means for the housing sector

Housebuilding and housing in general is a frequent beneficiary of government support, and the previously flagged cut to stamp duty has already lifted share prices. Most first time buyers have already been removed from having to pay the tax, so this really benefits higher priced properties that might be appropriate for families. That’s very much the sweet spot for the UK’s house builders and would also be good news for the struggling estate agency industry.

However it’s worth noting that not all housebuidlers will enjoy quite the same boost. Premium housebuilder Berkeley Group customers will still pay some Stamp Duty since its average selling price of £677,000 is above the upper limit for relief.

Increased new house sales would also be good news for suppliers into the sector – like brick manufacturer Ibstock – which have had to virtually shut down over the lockdown. There are no pure play insulation companies in the UK stock market. But increased renovation activity as a result of the green homes grant – up to £5,000 per property to improve home insulation – would be good news for the likes of Kingfisher (which owns B&Q and Screwfix) and Wickes owner and builders merchants Travis Perkins. Remember that all investments fall as well as rise in value, so you could get back less than you invest.

George Trefgarne is CEO of Boscobel & Partners, a consultancy. Hargreaves Lansdown may not share the views of the author.

The Chair of Hargreaves Lansdown is also a Non executive director of Whitbread plc.

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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    Article image credit: Getty images / Chris J Ratcliffe.

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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