// Chancellor says Covid lessons over targeted help informing tax breaks strategy
// Zahawi believes mix of tax measures and talks with energy suppliers could mitigate impact
Chancellor Nadhim Zahawi has drawn up plans for a multi-billion-pound package of tax cuts to help businesses hit by rising energy costs.
The chancellor is working on an emergency energy strategy for the new prime minister, and 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, according to The Times.
While he is not expected to remain as chancellor after the Tory leadership contest ends on Monday, Zahawi is understood to have discussed his plans with frontrunner Liz Truss and is in line for a senior job in her cabinet.
He warned that failing to act could force many companies into bankruptcy and lead to economic “scarring”.
However, he insisted that Truss, if elected, would “deliver help” to families and businesses despite her failure during the campaign to make specific commitments.
Zahawi said Truss would ensure that the government acted to minimise the impact of the increase next month as well as a further expected rise in January.
READ MORE: Retailers face soaring upfront energy payments
He stressed that it was vital that as well as supporting families, 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 £25 million a year to £75 million. This is a perfectly viable business. We have to make sure we support businesses as well as households,” he said.
Similarly, yesterday department store Beales warned over soaring energy bills.
Zahawi said he was in favour of a targeted approach that helped those worst hit, similar to measures introduced during the Covid crisis.
“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,” he said.
During the pandemic the government cut VAT for the hospitality and tourism industries, costing £4 billion in lost tax revenues. The government also temporarily scrapped business rates for the retail, hospitality and leisure sectors at a cost of £16 billion.
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