VAT cut: Why experts think Government must slash VAT to boost economy after coronavirus

There have been massive shifts in stock markets such as the FTSE, and a drastic increase in government borrowing which could dent the economy later down the line. On March 23, Prime Minister Boris Johnson announced a countrywide lockdown, which forces Britons to remain at home unless absolutely essential. Permitted is one form of exercise a day, necessary food shopping, essential work, and vital medical needs.


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However, this has meant many businesses have been forced to grind to a halt, causing serious impact on the economy.

Indeed, it is estimated the lockdown has cost the British economy £50billion thus far.

Millions of jobs are now at risk, with people being placed on furlough or let go from their jobs altogether.

A study undertaken by the Resolution Foundation has found the coronavirus crisis has already heaped a huge toll on the economy.

The study found significant deterioration within the labour market, creating the worst month for workers in living memory.

It also discovered the economic shocks to the market are not evenly distributed, with some sectors facing a complete stop in economic activity. 

However, experts believe the economy could be rescued efficiently after the coronavirus crisis.

A short-term solution posed is a temporary cut in Value Added Tax (VAT) – levied on most goods and services in the UK.

The standard rate of VAT is currently 20 percent, however this could be slashed after the coronavirus crisis.

This is because a cut in VAT would encourage Britons to go out and spend, providing a well-needed boost to the economy. 

VAT was last cut by Gordon Brown’s Labour government in the midst of the financial crisis in December 2008 from 17.5 percent to 15 percent.

The cut, however, was temporary, and restored to the previous level in 2010.

Shortly after coming to power, the Conservative-Liberal Democrat coalition raised VAT by 2.5 percent to 20 percent, and it has stayed at that level ever since.

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A cut in VAT will mean better news for the consumer, who could save money on a host of items, including the all-important weekly shop.

Less VAT, if only a temporary measure, could provide a cash injection needed to reboot the economy after a period of crisis. 

With a lockdown likely to be extended by the government for more weeks, further economic damage could be heaped on the economy, with a steeper hill to climb once the crisis is abated.

VAT is considered an indirect tax as it is paid to the government by the business rather than the consumer, who ultimately pays the economic price of the tax.

But the government is aware of the impact of coronavirus on finances and is looking to help.

The Treasury recently deferred VAT payments for businesses to help them manage their cash flow amid the crisis. 

Those who have a VAT payment due between March 20, 2020 and June 30, 2020 have the option to defer the payment until a later date. 

HMRC will not charge interest or penalties on any amount deferred as a result.

However, VAT returns will still have to be submitted to HMRC on time. 

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