According to The Times, the Chancellor has ordered officials in the Treasury and HMRC to prepare options to reduce the sales tax, including a cut in the headline rate, and zero rating more products for a fixed period.
In private briefings last week, Treasury officials pointed out that Sunak could lower VAT and business rates at the stroke of a pen when he makes a planned speech on the economy in early July.
There is a precedent for cutting VAT in a crisis. Alistair Darling, the then Labour chancellor, reduced it from 17.5% to 15% for 13 months after the 2008 crash. It was subsequently increased from 17.5% to 20% under Chancellor George Osborne in January 2011.
The Times reports that other proposals being worked up inside the Treasury include extending, for three months, a scheme under which businesses can defer VAT payments until 2021; cutting employer’s national insurance to encourage bosses to hold on to staff; introducing an employer’s national insurance holiday for new staff to encourage recruitment; and extending business rate relief.
It adds that Treasury sources have stressed that no decisions have been taken and that Sunak’s priorities might change.
Additionally, there are also reports in today's (22 June) Financial Times that the Chancellor could be planning to follow a VAT stimulus in the summer with tax rises in the autumn.