Chancellor’s multibillion-pound tax cuts package plan

02-Sep-2022 - Last updated on 02-Sep-2022 at 09:26 GMT

Multibillion-pound package: tax breaks pledge from chancellor (credit: Getty/Gary Yeowell)

Chancellor Nadhim Zahawi has outlined plans for a multibillion-pound package of tax cuts to help businesses facing collapse due to rising energy costs.

Zahawi, who is working on an emergency energy strategy for the new prime minister, said the Government could learn the “lesson from Covid” and introduce targeted reductions in VAT and business rates to help the retail and hospitality sectors.

He suggested tax breaks could also be given to energy-intensive industries and warned failing to act could force many companies into bankruptcy and lead to economic “scarring”.

We have to support businesses

Although Zahawi is likely to be replaced as chancellor when the next PM takes charge, he said it was vital the next chancellor should help businesses.

“If we don’t support businesses, I worry about the longer-term scarring of the economy. I had an example given to me the other day from EDF. One of their clients, their bills have gone from £25m a year to £75m. This is a perfectly viable business. We have to make sure we support businesses as well as households.”

He added: “The lesson from Covid is that actually there are some levers like VAT, like business rates. Targeting particular sectors of the economy, whether it’s hospitality or high energy use sectors, can be done very effectively. But as I say there are no easy options.”

Underspend could be used

During the pandemic, the government cut VAT for the hospitality and tourism industries, costing £4bn in lost tax revenues. The Government also temporarily scrapped business rates for the retail, hospitality and leisure sectors at a cost of £16bn.

Zahawi would not say how much money the Government would make available to businesses but highlighted underspending in the government’s budget for infrastructure projects that could be used to fund the help.

The Office for Budget Responsibility has put this figure at about £6bn so far this year. Zahawi said he was also working with the Bank of England to look at how the government could provide better liquidity in the wholesale energy market. Zahawi said this move could help reduce January’s price cap rise by up to £500. He also said he was exploring options on renewable energy.