VAT cut would spark economy, Rishi told

Leading thinkers tell the Mail how to revive the economy post-Covid

PLANS for a temporary cut in VAT next month could help spark an economic revival, according to a new report.

Chancellor Rishi Sunak is considering a temporary cut in the 20 per cent VAT rate when he unveils a mini-Budget next month designed to help lift Britain out of the coronavirus recession.

A string of former chancellors including Sajid Javid, Philip Hammond, Kenneth Clarke and Alistair Darling have urged him to do it.

The study by the Institute for Fiscal Studies (IFS) suggests the move could help boost the economy – but warns it might have a greater impact if brought in later in the year.

The report says cutting VAT ‘ has the advantage that it is a “shovelready” measure’ which would provide an immediate stimulus to the economy, compared with longer-term ideas such as infrastructure spending and tax breaks for investment. The independent think-tank says cutting VAT would have a double benefit for the economy by ‘putting money in people’s pockets’ immediately and encouraging consumers to bring forward spending on larger items such as televisions, white goods and cars.

It says this would produce a ‘multiplier effect’ for the economy, adding: ‘Greater purchases during the period of the VAT cut leads to more work for those producing that output, and in turn higher employment and earnings, which in turns leads to greater spending, and so on.’

The IFS suggested the Chancellor should study the impact of the relaxation of the lockdown on consumer spending before deciding whether to cut VAT. It said the move might be more effective later in the year.

IN the darkest hours of the Second World War, the Churchill-led coalition government embarked on the bravest of enterprises.

It sought to put in place a social and economic settlement which would protect the lives of citizens in decades to come.

The Beveridge Report of 1942 provided a blueprint for confronting what the author described as the five giants: idleness, ignorance, disease, squalor and want. It was also a best-seller.

Out of Beveridge’s vision, the NHS and the ‘cradle-to-grave’ protections of the welfare state were born.

The Covid-19 crisis has produced a loss of life greater than the Blitz, and a scale of state intervention in the UK’s free-wheeling economy totally out of keeping with modern AngloSaxon capitalism.

Fundamental questions about the divide among generations, income inequality, ramshackle taxation, technical education, social care and the current health settlement have been raised. Planning for the future needs to start now in the heart of crisis, as it did in the Second World War. Post-Covid Britain deserves nothing less.

As a step towards preparing for the post- coronavirus era, the Daily Mail asked a panel of thinkers from across the spectrum of political and economic opinion to resuscitate the vision of Beveridge for our time.

ANDY HALDANE

Chief economist, Bank of England, and chair of the Industrial Strategy Council

The crisis has caused a surge in small neighbourly acts of generosity, in the emergence of community and charitable support in the numbers of people volunteering their time to help others, including in the NHS. This is a rich endowment of social capital.

The endowment needs to be preserved and invested wisely if it is to help grow a good society and a strong economy.

A National Civic Service should be introduced for everyone, of all ages and in all regions, recognising and rewarding people’s unpaid contributions to their community.

BRONWEN MADDOX

Director of the Institute for Government

British people will come out of this with an even greater desire for better health services and care for the elderly. The Government should make sure that with all the focus on health, it does not neglect education. Pupils have lost valuable months and struggled in the absence of training and job opportunities, with the most vulnerable the hardest hit. It might also look at whether it is worth scrapping GCSEs, and focusing on A-levels and the new T-levels.

PAUL JOHNSON

Director of the Institute for Fiscal Studies

If this crisis has done anything, it has been to remind us of the importance of key workers on whom we are so dependent: doctors, nurses, care workers, food producers, retailers and the rest.

It may also lead us as a country to become more dependent on our own resources as international trade and supply chains shrink.

MARK LITTLEWOOD

Director general of the Institute of Economic Affairs

The Government needs to prioritise economic growth above all else, and it will need to do so without keeping the spending taps turned on.

The easy and obvious way to do so is to slash through regulation and red tape.

Throughout this crisis, the Government has scrapped a swathe of rules to keep the economy moving – from allowing lorry drivers to work longer hours to letting restaurants operate takeaway services without planning permission.

These rules should be permanently abolished and the Government should seek to put thousands of other regulations on to the scrap heap.

MIATTA FAHNBULLEH

Chief executive, New Economics Foundation

The coronavirus pandemic has exposed vulnerabilities in our society that have been swept under the carpet for too long.

None more glaring than the gaping holes in our social security safety net.

With unemployment set to rise to levels not seen since the 1980s, millions will be forced to rely on Universal Credit payments that can cover as little as two fifths of the basic cost of living.

As we recover from this crisis, we must rekindle the spirit behind Beveridge’s welfare state and its ambition to deliver a minimum standard of living ‘below which no one should be allowed to fall’.

JOHN ARMITT

Chairman of the National Infrastructure Commission

The immediate priority for infrastructure must be steps to help save jobs and firms. But there’s a limit to the number of ‘shovelready’ projects that can be started immediately. An ambitious plan for the medium term would be levelling up standards of flood resilience across the country. A national standard would ensure everyone could rely upon protection for their neighbourhood.

ROS ALTMANN

Former Pensions Minister

Let’s radically reform and simplify taxation – rebalancing the favourable tax treatment of debt over equity, and merging income tax with National Insurance.

Such reforms could lower total tax payments for millions, widen the tax base and reduce tax avoidance incentives, while also finally finding funding for social care. A modern- day Beveridge would undoubtedly address the biggest social policy failure of modern times – later life care.

ANDREW HILTON

Director of City think-tank the Centre for Study of Financial Innovation

The Big Idea must be to shift the economy from a Just-in-Time model to a Just-in-Case model. Pre-Covid, we all enjoyed stripping every bit of redundancy out of the economy to make it more ‘ efficient’, to pay managers bonuses and investor dividends.

But a system that maximizes efficiency and minimizes redundancy is super-fragile and vulnerable to sudden shocks.

The accounting system has to be tweaked to incentivise bigger reserves of capital and cash.

TORSTEN BELL

Chief executive, Resolution Foundation

Britain owes its low-paid workers a new settlement, showing them respect in ordinary times, not just these extraordinary ones.

Health risks are concentrated on 8.6m key workers, while 6.3m workers in shut- down sectors like restaurants bore most of the economic pain.

Lower earners dominate both groups, so a new settlement must include a higher minimum wage and stricter enforcement so people actually receive the money.