Sunak urged to slash VAT next month to save our ailing shops
CHANCELLOR Rishi Sunak could slash VAT as part of an emergency package to boost the stricken high street and hospitality industry.
Businesses forced to close during the virus lockdown now face further pain because of social distancing rules – but the Treasury plans could make products and services cheaper at a stroke by cutting the current 20 per cent rate or removing it altogether on some goods.
The proposal being considered by Mr Sunak is today backed by former Labour chancellor Alistair Darling, who cut VAT to 15 per cent in the wake of the financial crash 12 years ago.
In a paper published by the Policy Exchange think-tank, he said coronavirus had caused an ‘even more profound shock’ than the 2008 downturn.
But he warned against hiking other taxes and imposing austerity to compensate, moves Mr Sunak is said to be considering for his autumn Budget.
Lord Darling said: ‘After the Covid-19 crisis subsides, we will enter a new period of recovery. Increasing taxes will not be the answer here, even as the budget deficit and government debt rises.
‘If anything, emergency tax cuts – slashing VAT to 15 per cent for instance, as I did in November 2008 – should be considered to boost consumer spending.’ Any possible cut to VAT – or value would likely be announced when the Government loosens social distancing rules, expected on July 4.
One option being considered is for VAT to be cut just for pubs, restaurants and hotels, which are among the businesses worst-hit by the pandemic, the Financial Times reported.
But a move to reduce VAT would come at a hefty cost to the Treasury and officials are said to be divided over whether it would be effective.
When the Labour government cut the sales tax from 17.5 per cent to 15 per cent from December 2008 to December 2009, it cost the Treasury about £12billion. But ministers are facing increasing pressure from business groups to act. The British Retail Consortium has said a VAT cut, as well as a temporary reduction in income tax for low earners would ‘boost consumer demand and raise consumption’.
Yesterday Health Secretary Matt Hancock would not confirm whether a VAT cut is being considered.
But he told Sky’s Sophy Ridge on Sunday: ‘It’s very much a matter for the Chancellor and it is very much a matter for a Budget. But the economy has taken a terrible hit and we need to get it back on its feet and give people the confidence to get out there.’
Former Tory chancellor Sajid Javid has also backed calls to cut VAT. In a report for the Centre for Policy Studies, he estimates cutting it to 17 per cent for one year would cost the Treasury £21billion.
But he told The Sunday Times: ‘If it’s temporary and you actually end up turbocharging growth, in the long-term you could make a lot of that back.’
The Policy Exchange paper today also calls on the Government to boost the UK’s economic recovery by using recordlow borrowing rates to plough billions into massive infrastructure projects.
These include the expansion of electric vehicle charging points, cutting- edge fibre broadband, cycling and walking routes and investment in research and development of alternative energy sources such as hydrogen.