The economy is beginning to bounce back from lockdown but any recovery is expected to be slow with many high street businesses having to cope with social distancing measures restricting the number of customers they can serve.
With this in mind, the Government is considering a reduction to the standard rate of VAT in an attempt to boost consumer spending and pump billions into the ailing economy; such an initiative was last seen during the global financial crisis of 2008.
Increase in retail sales
Official figures released last week showed an increase in retail sales in May from the coronavirus hit period in April but the Chancellor, Rishi Sunak, is anxious to support spending further as the Treasury’s furloughing scheme is tapered out starting in August.
Other stimulus under consideration include a reduction in business rates and cutting employers NI contributions – in an attempt to persuade businesses to hold on to workers, as wage subsidies come to an end, to prevent the mass unemployment feared by the Government.
A summer package of measures
Plans for a summer package of measures have been under discussion for weeks but the Treasury has been waiting to see if lockdown restrictions such as social distancing rules would be further eased before going ahead.
Mr Sunak will outline his plan in July although the Treasury insist that the statement in not a mini-budget and will not include the latest economic forecasts.
Emergency tax cuts such as lowering the standard rate of VAT to 15% for example would cost circa £35bn in lost revenue. With the country’s public debt currently eclipsing the size of the economy, for the first time since 1963, any further tax cuts would only further add to this burden.
The Treasury is known to be uneasy about the current levels of debt, but many economists take a relaxed view following forecasts that interest rates on government debt many stay low for many years, possibly decades.
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