Thursday 9 July 2020 9:52 am

We can’t rebuild an economy on half-priced meals — we need a productivity revolution

Philip Salter is founder of The Entrepreneurs Network.

If Joe Wicks or Couch To 5K have helped you shed a few pounds during lockdown, chancellor Rishi Sunak may have just undone all your hard work, tipping the scale in favour of eating out a lot more in August.

For every Monday, Tuesday and Wednesday, the Eat Out to Help Out scheme will entitle everyone to a 50 per cent discount of up to £10 per head on their meal. Those looking to make the most of the system may burn a few additional calories though, hopping between restaurants for a £20 starter at one, then a main course at another, and dessert somewhere else.

The chancellor also announced a sector-specific reduction in VAT from 20 per cent to five per cent to support businesses in the hospitality, accommodation and attractions sectors. Economists will be hoping that this is indeed temporary, as in normal times VAT is widely considered one of the least distortionary taxes — at least, when the rates between things are the same.

Read more: Rishi Sunak Summer Statement: All the Chancellor’s spending pledges

The other headline-grabbing announcement will be raising the level at which stamp duty needs to be paid from £125,000 to £500,000. This is a tax cut most economists will hope is made permanent — or better yet, that stamp duty is scrapped entirely and replaced with some sort of housing services tax or a land value tax, as recommended in the peerless Mirrlees Review of taxation.

Turning to businesses, up to £9.4bn the Job Retention Bonus is expected to be the most expensive. It’s a one-off payment of £1,000 to UK employers for every furloughed employee who remains continuously employed through to the end of January 2021. Business owners who didn’t put their employees on furlough may be kicking themselves, but there were always going to be winners and losers no matter what the government did.

On top of this, Sunak announced a £2bn Kickstart Scheme, which will fund a six-month job placement for young people and the long-term unemployed. Businesses will also be given £2,000 for each new apprentice they hire under the age of 25, with further funds invested in traineeships, work coaches, infrastructure projects and much else besides.

The Summer Statement is certainly deserving of its “Plan for Jobs” title, but as Sunak said, the third phase will be about policies to help rebuild. Central to this must be increasing the UK’s productivity, which has been flagging since the financial crisis. 

That’s something we at The Entrepreneurs Network attempt to tackle in Upgrade, a report out today in partnership with Xero on how we can increase productivity for the long tail of SMEs who aren’t as productive as comparable businesses in other countries. 

We find that over a third of small businesses are not adopting tried-and-tested tech. If we could get the UK’s 1.1m micro businesses to double their uptake of key digital technologies it would lead to a total £16.6bn boost to the economy. This amounts to a £4,050 average productivity boost for the 4.09m workers employed by micro businesses, restoring four fifths of lost productivity growth between the financial crisis and the lockdown. 

We suggest reforms such as peer-to-peer learning initiatives led by the private sector so entrepreneurs can learn from each other, widening the scope of the R&D tax credit to encourage entrepreneurs to invest in innovation, and allowing tax relief for self-funded training.

We can’t rebuild an economy on half-priced meals for a month. The final phase will be the real test of this government and those around the world. Today’s report focuses on SMEs, but we need reforms across all areas of government that put increasing productivity at the centre of our economic recovery,

Let’s hope the chancellor and his colleagues have the appetite for it.

Read more: Small businesses welcome Rishi Sunak’s ‘jobs first approach’

Main image credit: Getty

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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