Chancellor Rachel Reeves is considering raising the threshold at which businesses start paying VAT in an effort to boost growth.
The Telegraph reports that Reeves is understood to be reviewing the VAT regime as she prepares to launch a raid of at least £20 billion to balance the books.
It is understood that Whitehall officials raised the prospect of lifting the VAT registration threshold from its current level of £90,000 as “a growth measure” at meetings before summer recess, the newspaper reports.
The move will likely be a boost for UK business optimism, which is improving despite the gloomy economic backdrop. UK business confidence has risen two points to 54%, according to the latest Lloyds Business Barometer. The August reading marked the fourth consecutive monthly increase. The increase was driven by a five-point rise in businesses’ confidence in their trading prospects to 63%, which is the highest level since 2014.
However, economic optimism edged down for the first time since April, with a fall of three points to 44%, but it remains above the long-term average of 19%.
In August, the net balance of firms expecting to raise prices over the next year was up four points to 65%. 67% (from 65%) of firms said they would raise prices in the coming year, while those anticipating price reductions fell slightly to 2% (from 4%).
Manufacturing firms saw confidence up 14 points this month, to 62%. This level was previously seen in 2015. Retailers also saw an increase in confidence this month, with levels up 13 points to 57%, a five-month high.
“This continued upward trend in business confidence suggests UK firms remain optimistic about their own trading prospects, while there is a modest cooling of confidence in the wider UK economy,” said Hann-Ju Ho (Senior Economist, Lloyds Commercial Banking).
“Firms are focusing on what they can control, with many looking to pursue growth opportunities, including entering new markets and adopting new technologies. Wage expectations have seen a notable shift this month, but it remains to be seen whether this signals the start of a sustained trend or a temporary uplift, as they have been broadly stable in recent months.”
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