UK Chancellor Rishi Sunak is mulling a cut to value added tax (VAT) to encourage consumer spending amid pressure to boost the country’s economy, battered by the coronavirus pandemic, the FT reported.
This news comes not long after Sunak said that if Prime Minister Boris Johnson relaxes the two-metre social distancing rule, it “will make an enormous difference” to businesses.
The rule was criticised by the hospitality industry, which is pushing for the rate of VAT to be lowered, as is the retail sector.
In a letter to the chancellor seen by the FT, Helen Dickinson, CEO of the British Retail Consortium, said that “a temporary reduction in the headline VAT rate and in income tax for lower earners would boost consumer demand and raise consumption”.
Treasury officials confirmed to the FT that the VAT plans are under discussion and no decision has been taken.
Shops have already opened and bars and restaurants are likely to open next month. The Treasury will be monitoring the level of spending to gauge whether a tax cut is needed to encourage spending, the FT report said.
While lower VAT will cost the exchequer, Sunak is also working on plans for deferred tax rises and cuts to public spending in an Autumn Budget.
He is considering what measures to announce in a summer statement, expected in early July, and what should wait for the full Autumn Budget, the report said.
The UK economy is badly bruised by the pandemic. Government borrowing surged to a new record high in May, hitting £55.2bn ($68.2bn) and beating the newly revised £48.5bn for April, following heavy spending in the face of coronavirus, according to new figures.
Meanwhile the Bank of England launched another £100bn of economy-boosting action to help combat the “unprecedented” shock from COVID-19, as it warned over a looming jobs crisis.
A Treasury spokesperson told Yahoo Finance: “We do not comment on speculation and further measures will be set out ahead of summer recess.”