Sunak mulls VAT cut to boost economy after lockdown
Rishi Sunak is reportedly considering cutting VAT rates to provide a much-needed boost to the economy after months of lockdown.
The chancellor has ordered Treasury officials to draw up plans to reduce the sales tax, including a cut in the headline rate, the Sunday Times reported.
Other proposals being considered include cutting employers’ national insurance, extending business rate relief and prolonging the VAT payment deferral scheme until 2021.
Similar strategies were adopted by former chancellor Alistair Darling, who introduced a VAT cut from 17.5 per cent to 15 per cent for 13 months following the 2008 financial crash.
Ex-chancellor Sajid Javid today said he would support a one-year cut in the top rate of VAT to 17 per cent to revitalise the economy post-lockdown, but warned that the plan would cost the exchequer upwards of £21bn.
It comes amid mounting fears over the long-term economic impact of the pandemic, after Sunak last month warned that the UK faces “a severe recession like no other”.
Official figures estimated that UK GDP slumped 25 per cent since the beginning of lockdown, and the number of people claiming work-related benefits more than doubled to 2.8m.
Economists have now predicted that the UK will see a slow U-shaped recovery, rather than the faster V-shaped recovery predicted by the Bank of England.
The chancellor yesterday took to the streets of North Yorkshire to urge the public to go out and shop, in a bid to revive the economy after months of business closures.
Sunak said ministers will announce in the coming week whether the two-metre social distancing rule in England will be relaxed. He said doing so would “make an enormous difference” to businesses “keen to see a change”.
The government has said it hopes to reopen pubs, restaurants and hotels from the beginning of July if safe, but has yet to give a definitive date.
Prime Minister Boris Johnson has faced widespread pressure from Tory backbenchers and leaders of the hospitality sector to provide clarity on the issue, amid warnings that many businesses will be unsustainable if the two-metre rule is not eased.
Former Conservative Party leader Sir Iain Duncan Smith warned of the dire economic consequences of maintaining the two-metre rule, which he described as “the critical component around which everything coming out of lockdown hinges”.
“Our economy is facing a complete crash: the debts we’re racking up on how we’re supporting people, the fact no work or very little work is taking place,” he said.
A new report released today by scientific body Independent Sage warned that it is still “not safe to reduce social distancing to one metre indoors”.
Sir David King, former chief scientific adviser and chair of the report, said: ‘It is extremely concerning that the government appears to have decided to ignore the scientific advice of its own Sage committee.”
“‘The rate of infection is still far too high to consider this even with mitigating measures. There are more 1,000 new cases a day and still no functioning tracing system. It is vital that the government releases the evidence it has used to make this decision.”
It comes as the government is considering introducing a raft of measures to support the hospitality once the lockdown is eased.
Pubs could be patrolled and cafes and restaurants will be automatically allowed to serve takeaway alcohol to encourage an “al fresco revolution”, according to the Times.