Scottish Government seeks a VAT rate cut to 5% for hospitality and an extension to furlough

kate forbes

A new Scottish Government report is winging its way to the UK Government suggesting that VAT be reduced to 5% for the hospitality and tourism sector and the standard rate of VAT be cut to 15% for six months once current restrictions are lifted.

Finance Secretary Kate Forbes launched “COVID-19: UK Fiscal Path – A New Approach today (29th June). The report suggests a UK-wide £80 billion stimulus package which includes: a two pence cut in employers’ National Insurance Contributions to reduce the cost of hiring staff; the introduction a jobs guarantee scheme for young people, with increased training, and an extension of the furlough scheme, or some other form of wage subsidy, for the hardest-hit sectors, as well as the abolition of the apprenticeship levy.

Ms 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.

She continued, “This report recommends bold, practical steps which would provide an immediate boost to our economy, protect existing jobs and deliver new ones. It tackles public debt, employment and proposes measures to further support business. 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 four per cent 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.

Other action it proposes the UK Government should take to kick-start the economy include:

  • create a National Debt Plan to help business and household budgets recover from the effects of the pandemic

  • adopt new fiscal rules which prioritise economic stimulus over deficit reduction in times of crisis

  • accelerate major investment in low carbon initiatives, energy efficiency and digital infrastructure

  • extend Scotland’s financial powers to allow it to shape its own response to the pandemic

“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,” said Ms Forbes.

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