Editor | 25 June 2020
Could VAT and NI Cuts Boost Economy?

Could VAT and NI Cuts Boost Economy?

Chancellor Rishi Sunak is reportedly drawing up plans for temporary tax cuts and other measures to help boost the British economy as it emerges from lockdown next month.

Facing a steep recession triggered by the coronavirus outbreak, which could involve high numbers of job losses and business failures, the Chancellor is searching for ways to bolster the economy and boost spending.

It is thought that the Chancellor is considering a range of options, including a VAT cut, a reduction in employers’ National Insurance Contributions and business rates reform.


The idea of temporarily cutting VAT to boost the economy has already been floated by two previous Chancellors - Sajid Javid and Alistair Darling.

Javid, who is Sunak’s immediate predecessor, has called for the sales tax to be reduced to 17% from 20% - a move that would cost the government £21bn in lost revenue.

When Alistair Darling was Labour Chancellor during the 2008 economic crisis he pursued a similar policy, cutting the rate of VAT from 17.5% to 15% for 13 months.

It is thought that Sunak is considering a targeted VAT cut on sectors hit hardest by the coronavirus outbreak, including hospitality and tourism. This, it is hoped, would encourage more customers to visit hospitality venues and book holidays.

National Insurance

Business leaders are calling on the Chancellor to cut employers’ National Insurance Contributions (NICs) to prevent job losses.

As the job-supporting furlough scheme is tapered back, experts believe the unemployment rate could more than double to levels last seen in the 1980s.

Employers’ NICs are the single biggest non-wage labour cost that employers need to pay which add up to £2,400 per year for the average employee.

To reduce this business cost, the Chancellor could raise the threshold at which employer NICs are made. He could also tailor the support for specific age groups by, for example, exempting under 30s to boost youth employment.

Business rates

The Chancellor has already implemented a business rates holiday for firms in the retail, leisure and hospitality industries to support these sectors during the pandemic.

However, some experts have called on the government to go further and many would argue that wholesale business rates reform is long overdue.

Many have called for the outdated system to be replaced by a sales tax, which would help level the playing field between bricks and mortar businesses and those selling online.

The coronavirus pandemic may be the perfect time to push through this change, as online powerhouses like Amazon have seen their revenues increase during lockdown, while high street shops and restaurants have floundered.

At the budget in March, Sunak announced a “fundamental review” of business rates, due to be published this autumn.

Miles Grady, director of CloudAccountant.co.uk, said: “The Chancellor Rishi Sunak has already shown that he is not afraid of making significant changes that he feels are important, like the introduction of the income support schemes for employees and freelancers.

“Whatever policies the Chancellor chooses to embrace, it’s important that businesses can react quickly to the changes and update processes in their financial management systems. Cloud software like FreeAgent and Xero is perfect for making these changes quickly and easily and our accountants are always available to lend a hand.”

For more information speak to a member of the Cloud Accountant team today. Call: 0808 281 0303.