Reduce VAT to 15% for six months, says Scottish Government

VAT should be temporarily reduced to 15% to boost the country’s recovery from the coronavirus pandemic, according to a Scottish Government report.

For businesses in the tourism and hospitality sectors, it should be cut to 5%, the paper adds.

It’s part of a set of “bold and practical” proposals Scottish ministers are putting forward to help the economy bounce back from the impacts of Covid-19.

The report, entitled Covid-19: UK Fiscal Path – A New Approach, suggests an £80bn UK-wide stimulus package should be created to regenerate the economy, with a focus on reducing inequalities.

The package could finance a six-month reduction in VAT from the current rate of 20% to 15% and move the tourism and hospitality industries onto a reduced VAT rate of 5%.

A two pence cut in employers’ National Insurance Contributions to reduce the cost of hiring staff is also recommended, along with a new National Debt Plan to help business and household budgets recover from the financial effects of Covid.

The Scottish Government also says major investment in low‑carbon initiatives, energy efficiency and digital infrastructure should be accelerated, and that Scotland should get more economic powers.

It comes as Prime Minister Boris Johnson has pledged a post-pandemic spending blitz to help the UK economy recover from the “nightmare” of coronavirus.

Speaking on Monday morning, he said his government was preparing for infrastructure spending on a scale comparable to Franklin D Roosevelt’s New Deal following the Great Depression in the US in the 1930s.

The Scottish Government report also repeats the call from Benny Higgins, the Tesco Bank boss and head of Nicola Sturgeon’s economic recovery advisory group, to guarantee jobs for young people.

Finance secretary Kate Forbes said: “We are emerging from the biggest economic shock of our lifetimes.

“It has hit the most vulnerable in our society disproportionately and presents challenges that the Scottish Government does not currently have the powers to meet.

“The UK Government’s fiscal policies are still key in determining our budget, so today we set out the principles we believe it should follow to ensure we emerge with a fairer, greener economy that values wellbeing alongside growth.

“This report recommends bold, practical steps which would provide an immediate boost to our economy, protect existing jobs and deliver new ones.”

She added: “Crucially, it avoids any return to austerity. Economic stimulus must be prioritised over deficit reduction until the recovery has fully taken hold.

“Germany has already adopted a similar-size stimulus package, representing 4% of GDP, and the UK Government needs to be similarly positive, proactive and ambitious.

“Action is needed now. If the UK Government is not prepared to respond then Scotland must have the additional financial powers required to secure a sustainable economic recovery.

“Without those powers we will be at a severe disadvantage to other nations.

“It would be like trying to chart our way to recovery with one hand tied behind our back.”