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Rishi Sunak reportedly mulling VAT cut to boost economy amid coronavirus slump

The Chancellor is reportedly considering the move amid sluggish economic activity

2 min read

Rishi Sunak is reportedly considering a VAT cut to get the economy moving as the UK continues to emerge from lockdown.

The Chancellor has ordered Treasury officials to produce plans for slashing VAT in a bid to get the economy moving as restrictions continue to be eased, the Sunday Times has reported.

The move comes amid growing fears of the long-term economic impact of the pandemic, with Mr Sunak previously warning the country was facing a "severe recession like no other".

The Chancellor had already suggested he was open to the plan, but had wanted to see how quickly consumers began spending after shops reopened.

Most non-essential retail outlets were given the green light to restart trading earlier this week, but economic data showed they had only recieved a two-day boost in sales before falling to around 40% of usual levels.

And the paper reports Mr Sunak could use a major speech on the economy, planned for early July, to announce measures such as a significant cut to the 20% headline rate of VAT, as well as introducing a zero-rating on some products to boost spending.

Others plans reportedly being considered by the Treasury include a three-month extension to the scheme which allows firms to defer VAT payments until next year, as well as a cut in employer's national insurance to boost staff retention.

A similar strategy was adopted by former chancellor Alistair Darling, who introduced a VAT cut from 17.5% to 15% for 13 months in the wake of the 2008 financial crash.

Meanwhile, in an interview with the paper, ex-chancellor Sajid Javid said he would also support a one-year cut in the top rate of VAT to 17% in a bid to stimulate the economy.

He said the plan would cost the Exchequer around £21bn, but added: "If it's temporary and you actually end up turbocharging growth, in the long term you could make a lot of that back.

"The priority has to be job creation."

But Mr Javid said he would not like to see personal taxes rise in response to the crisis, saying the move would be "utterly self-defeating".

He added: "I think it would lead to not just hurting the recovery but eventially to lower tax revenue.

"The smart thing is to focus on temporary tax cuts that will boost growth."

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