Chancellor Nadhim Zahawi has drawn up plans for a multibillion-pound package of tax cuts to support businesses facing soaring 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 that failing to act could force many companies into bankruptcy and lead to economic “scarring”.
Zahawi said: “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…
“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.”
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 £16bn.
