New chancellor Phillip Hammond has announced this week that he will cut corporation VAT in the UK if it means that it will help the economy. Hammond also stated that if he goes ahead with the plans, that it might instill some faith back into the British people.
It’s believed by some experts that the British economy will crash soon in the wake of the vote for the UK to leave the EU. Hammond stated in his speech this week that the Brexit vote has dented the British confidence in the government, despite the rise in jobs since the Eu Referendum. He intends to fix it and regain the trust of the British public.
He also stated that he will be monitoring economic data very closely and will act accordingly with help from the new Prime Minister Theresa May. Since Brexit, there has been a significant drop in sales throughout the UK, as noted by Manufacturers with large factories in England and Wales.It’s believed that cutting VAT from 20% to 15% will have a better impact on the economy if paired with the prediction that the Bank of England will lower its interest rate from 0.5 to 0.25% in the next month of so to boost the economy.
Hammond also hinted at some more radical changes to the economy once we officially leave the EU. He laid out plans to clampdown on overseas sellers not paying their tax. It’s thought this was aimed at companies such as Amazon, eBay, and Starbucks, who have notoriously avoided tax in the past.
This news has been met with mixed reviews from the public who believe the supply chain of products in the UK will be affected by the decisions made by Hammond and May. Critics also believe that this clampdown on bigger companies will make small time tax evaders take advantage of the heat being taken off them.
Michael Martins from the Institute of Directors, things that Hammond is making the right decision towards helping the economy in the wake of Brexit, saying that”VAT is regressive in nature: It hits poorer households harder because consumption makes up a much larger share of their disposable income”. He went on to say that “a cut in VAT would seem unlikely at a time when the new chancellor is likely to pursue an accelerated reduction in corporation tax and increased fiscal stimulus on things like infrastructure projects”.
VAT is one of the largest tax in the UK, and it is an EU concept designed to bring in more money for the government. Cutting the amount of corporation tax would see the economy stabilise in the event of a crash following leaving the EU.
It’s unsure what will happen once we formally leave the EU, however, if Hammond does decide to cut VAT – he can only legally cut it to 15% under EU law