Treasury may consider temporary cut to VAT

Speculation is mounting that the UK could follow Germany by reducing the standard rate of VAT in next month's emergency fiscal announcement.

On 4 June 2020, Germany slashed its standard rate of VAT from 19% to 16% from 1 July 2020 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.

This is the first major global attempt at fiscal easing to stimulate consumer demand in response to the financial implications of COVID-19.

It signals policy moving into a new phase as governments attempt to deal with the rapidly moving health and resulting economic crises.

A mini-Budget 2020 may take place in the first week of July in a bid to save the economy, which contracted by a record 20.4% in April.

Reports suggest Chancellor Rishi Sunak could announce a temporary cut to the UK's standard VAT rate, from 20% to 15%.

The Chancellor is also being urged to reclassify the UK's 5% reduced rate of VAT so that it applies to hard-hit restaurants, cafes, and hotels.

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