Retailers warn VAT cut could heighten coronavirus risks

In a call between high street retail bosses and the Department for Business, Energy and Industrial Strategy, discount fashion chain Primark warned against government slashing VAT to stimulate the economy, according to The Times.

The high street giant, which has stores all over the world, said that since VAT had been cut in Germany in response to the pandemic, staff at its 27 stores had reported an increase in cash usage.

Throughout the pandemic, many retailers have tried to deter customers from paying in cash, with several grocers increasing contactless payment limits and cutting the number of staffed tills to protect staff.

The news comes as the government tries to scramble to restart the economy following nearly three months of lockdown due to the virus.

While the Treasury is considering cutting the 20% VAT rate, economists are divided over whether the move would be effective or not.

Those against the move warn that it would create administrative costs for business and would only succeed if the tax cut was passed on to consumers.

Given the highly promotional retail environment following the reopening of stores, analysts question whether another small reduction would make any meaningful difference.

After the 2008 financial crisis, VAT was reduced from 17.5% to 15% for the year, which the Institute for Fiscal Studies said proved to be an “effective stimulus”.

HM Revenue & Customs claim that 80% of businesses ended up passing the cut on to consumers.