Could the Chancellor cut taxes for businesses?

by | Jul 6, 2020 | Blog

Could Chancellor Rishi Sunak slash business taxes to provide further fiscal stimulus for the UK economy in his first official fiscal statement since the March Budget?

Since announcing that he will deliver a statement on Wednesday 8 July, speculation has been mounting, with former chancellors from both sides of the political divide adding their ten-pence.

However, any move to temporarily lower taxes for the rest of 2020/21 would come at considerable cost to the Treasury.

The UK’s debt is now worth more than the economy after the Government borrowed a record £55.2 billion in May 2020.

The borrowing splurge sent total government debt surging to £1.95 trillion, exceeding the size of the economy for the first time in more than 50 years.

It is possible Sunak could reveal his hand ahead of the autumn Budget, with deferred tax rises and lower public spending in the pipeline.

In the meantime, we take a look at three realistic tax breaks the Chancellor could announce in next month’s stimulus package.


Two former chancellors, Sajid Javid and Alistair Darling, are urging the Chancellor to follow Germany’s lead by temporarily reducing VAT.

On 4 June 2020, Germany slashed its standard rate of VAT from 19% to 16%. This kicks in from 1 July 2020 and will last until 31 December 2020.

At the same time, Berlin revealed the reduced rate will also be cut from 7% to 5% and the temporary reduction will cost Germany €20bn.

Javid has called for the UK’s standard rate to drop from 20% to 17%, while Darling is in favour of slashing it to 15%.

Reports suggest the Chancellor could also reclassify the UK’s 5% reduced rate of VAT so that it applies to hard-hit restaurants, cafes, and hotels.

National insurance

Javid has also called for employers’ National Insurance contributions (NICs) to be temporarily cut.

According to the Institute of Employment Studies, NICs are the biggest non-wage labour cost faced by employers.

Sunak could also tailor the measures to specific age groups, for example, by exempting under-30s from national insurance to boost employment prospects for young adults.

In a report by the Centre for Policy Studies, Javid said: “Temporary cuts in VAT and employer’s National Insurance are extremely good candidates for stimulus spending.”

In spring Budget 2020, Sunak revealed a one-year business rates holiday for firms operating in the retail, leisure, and hospitality sectors in England.

Industry groups are calling for this break to be extended to other companies that are feeling the effects of the coronavirus.

A fundamental review into the business rates system is ongoing, with the report due to be published ahead of the autumn Budget.

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