Sajid Javid says VAT and National Insurance should be cut to help UK economy recover

Javid believes cutting VAT will 'give consumers more bang for their buck... it could be a vital tool for ensuring businesses can weather the storm and retain staff'

Former chancellor Sajid Javid has warned that a “strong and respected” Treasury is needed to help the UK recover from the coronavirus crisis, months after he quit over what was seen as a No 10 power grab.

Mr Javid resigned in February when he was asked to sack all his advisers in favour of a “merged” team of advisers shared between No 10 and No 11.

At the time he said he did not think any “self-respecting” minister would have accepted the terms.

In a new joint report with the Centre for Policy Studies (CPS) think tank, Mr Javid calls for temporary cuts to national insurance and VAT to help the country bounce back from the economic devastation caused by Covid-19.

The report also warns that the government must “maintain the credibility” of institutions such as the Bank of England.

“Similarly, confidence in our currency is predicated on a strong and respected finance ministry. It is essential that the Treasury continues to be seen as a check and a balance to Whitehall’s desire to spend.”

Mr Javid’s successor as chancellor, Rishi Sunak, has been praised for his decisive action as the coronavirus crisis hit, especially his decision to pay workers at risk of redundancy through a giant furloughing scheme.

But he faces a difficult summer as he attempts to wind down the scheme and kickstart the wider economy.

Mr Javid has estimated that a cut in VAT from 20 per cent to 17 per cent for one year would cost the Treasury £21bn, but “as a one-off fiscal hit to give consumers more bang for their buck, it could be a vital tool for ensuring businesses can weather the storm and retain staff”.

The report also calls for a “significant” temporary reduction in national insurance, to make it cheaper for employers to take on staff.

Early hopes of a swift “V-shaped” recovery had proven “optimistic”, it says, and as many as 2.5 million people could be left out of work.

Other recommendations include bringing forward a series of “shovel ready” infrastructure projects.

Alistair Darling, another former chancellor, has also called for an emergency VAT cut to boost consumer spending.

Mr Javid said: “My colleagues in government have done a fantastic job supporting the economy so far. I hope this report proves helpful for the task that lies ahead.”