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Coronavirus: the government’s summer stimulus package

As the UK moved out of the initial Covid lockdown phase in the summer, the government attempted to stimulate demand and speed up economic reopening.

As the UK moved out of the initial Covid lockdown phase in June and July, the government attempted to stimulate demand and speed up economic reopening. Chancellor Rishi Sunak’s announcement on Wednesday 8 July – launching a ‘Plan for Jobs’ – set out the government’s policies for this phase, building on the infrastructure investment plans announced by Boris Johnson the previous week.

These policies were focused on stimulating demand, especially in sectors hard-hit by social distancing, improving the UK’s infrastructure and helping those made unemployed to find work.

How much did the government's summer Covid stimulus policies cost?

The Office for Budget Responsibility (OBR) originally estimated that the policies included in the ‘Plan for Jobs’ would cost around £20bn – or 1% of pre-pandemic GDP. This was significant, but smaller than the stimulus packages launched by some other advanced economies – like Germany, for example. It brought total government spending on the crisis up to that point to around £190bn.

The £20bn total included around £2bn additional spending on infrastructure, extra spending on employment and job search programmes (including a new Kickstart scheme to help young unemployed people into work) and about £6bn for a Job Retention Bonus – a £1,000 payment to firms for each formerly furloughed employee retained. However, this latter policy was postponed, possibly permanently, by the chancellor in November.

The OBR now estimates the additional cost of the policies included in the summer economic update to have been around £11bn – 0.5% of UK GDP. The most prominent fiscal stimulus policies announced by the chancellor in the summer were a stamp duty holiday (estimated by the OBR to cost £3.3bn), a temporary VAT cut for hospitality and leisure (£2.5bn) and the Eat Out to Help Out scheme (£840m).[1]

What measures were announced to help specific sectors?

Help for hospitality and tourism

The hospitality and tourism industries have been particularly hard-hit by this crisis and the need for social distancing, with many businesses forced to close for long periods. The chancellor recognised this in his summer speech, announcing two measures aimed at these industries.

Value added tax (VAT) paid on takeaway or eat-in food, non-alcoholic drinks, accommodation and tourist attractions was reduced from 20% to 5% from 16 July 2020 to 12 January 2021. This measure was aimed at lowering prices and encouraging people to spend in restaurants, pubs, hotels and theme parks. This was extended by the chancellor in September to last until 31 March 2021.[2]

The chancellor also launched the headline-grabbing Eat Out to Help Out scheme, which offered a 50% discount (up to a maximum of £10 per person) for restaurant meals on Mondays, Tuesdays and Wednesdays in August. This measure was originally expected to cost around £500m but unexpectedly high take-up pushed the cost up to £840m.

Stamp duty cuts

The government raised the threshold for stamp duty, a tax on house purchases, from £125,000 to £500,000 – reducing the amount of stamp duty owed on all houses bought for over £125,000 in England and Northern Ireland.

This cut will last until 31 March 2021. It was intended to boost demand for houses, as well as other goods and services that people buy for new homes – such as kitchens, bathrooms, home furnishings and other decorating services.

What did the government do to tackle unemployment?

Kickstart scheme

The most ambitious of the chancellor’s summer policy announcements for the unemployed, the Kickstart scheme subsidises businesses who create new jobs for people aged between 16 and 24 who have been claiming Universal Credit and who are deemed to be at risk of long-term unemployment. To qualify, employers must offer a minimum of 25 hours a week of work, paid at least at the minimum wage, for six months.

The scheme is only available to firms creating new jobs, and employers are expected to provide training and support to help the employee find a permanent job at the end of six months. In return, the government will pay the wages of the ‘Kickstarter’ up to minimum wage for 25 hours a week, along with associated national insurance, pension and administrative costs – amounting to a total of around £6,500 over six months for someone in their early 20s. Applications opened in August.

The scheme had an initial £2bn budget, meaning it could be used to help around 300,000 people. However, the chancellor said there would be no limit to the total funding available. It is roughly modelled on the Future Jobs Fund, a scheme used by the Labour government in 2009 to subsidise youth employment, which was broadly seen as successful in helping people permanently enter (or re-enter) work.[3]

Retraining and careers advice

The government allocated around £1.6bn to other initiatives linked to tackling unemployment. These included more funding for careers advice and work search support and a tripling of traineeship places.

In addition, the chancellor allocated more funding to help 18- and 19-year-olds study for high-value level 2 and 3 qualifications (vocational courses equivalent to GCSEs and A-levels), and increased payments to employers hiring new apprentices to £2,000 for under 25s (£1,500 for over 25s) until the end of December 2021.

What is the government doing on infrastructure and investment?

Bringing forward infrastructure spending

Boris Johnson’s speech on 30 June promising to ‘Build, build, build’ offered a series of measures to help the construction industry, including reforms to the planning laws to allow commercial properties to be converted to housing more easily and the creation of a Construction Talent Retention Scheme to support the redeployment of skilled construction workers at risk of redundancy.

But the biggest measures included in the speech were promises to bring forward £5.6bn of infrastructure spending. This will primarily be spent on maintenance and upgrades for hospitals (£1.5bn) and schools (£1.8bn), as well as £1bn for other local projects and smaller sums for maintenance of courts and roads.

The projects prioritised are supposed to be ‘shovel-ready’– that is, they can be planned and completed in a short period of time so they create work (and more jobs) in the short-term. To help ensure this happens, the government has created a new infrastructure delivery taskforce (to be called ‘Project Speed’), headed by the chancellor, to accelerate delivery. However, the government has struggled to get capital spending out of the door quickly in the past, and some of these projects are reannouncements of previously delayed projects.

Green retrofitting schemes

There were also a set of measures aimed both at jobs and helping reduce greenhouse gas emissions. The government has budgeted an initial £2bn for a Green Homes Grant scheme, through which homeowners and landlords will receive government grants of up to £5,000 to cover up to two-thirds of the cost of investments to make their homes more energy efficient, for example by installing insulation.

Low-income households will receive grants of up to £10,000 to cover the full cost of such alterations. The government hoped to upgrade 600,000 homes through this scheme and help the country to meet its net zero targets in the process. This scheme was originally expected to run until March 2021 but was extended in November 2020 to last until March 2022.

However, newspaper reports suggest the scheme is likely to be scrapped after giving out less than £100m in grants in its first six months.[4] The cost of the scheme is therefore likely to be significantly lower than the £2bn originally anticipated.

The government also created a £1.1bn fund for public buildings, such as hospitals, schools or social housing, to improve energy efficiency.

What wasn’t in the package?

The measures announced did not include a generalised demand stimulus. That is, there was no attempt to generally increase the amount that people are spending. Instead measures were targeted at boosting demand in specific sectors.

This is in contrast to the approach taken in some other countries, where attempts have been made to stimulate the economy through spending vouchers (South Korea), general VAT cuts (Germany) or payments to low-income individuals (Spain, Australia and the US).


[1] Office for Budget Responsibility, Economic and fiscal outlook, November 2020,

[2] BBC News, Rishi Sunak: VAT cut to be extended for hospitality sector, 24 September 2020,

[3] Department for Work and Pensions, Impacts and Costs and Benefits of the Future Jobs Fund, November 2012,

[4] Swinford S, £1.5 billion Green Homes Grant faces axe after a year, The Times, 19 February 2021,

Institute for Government

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