U.S. markets closed

Rishi Sunak considers national insurance holidays for firms as part of coronavirus recovery package

Anna Mikhailova
The Chancellor has warned that the UK faces a severe recession, with 'more hardship to come' - Andrew Parsons/AFP

Rishi Sunak is considering national insurance holidays for companies as part of an economic recovery stimulus package in July, The Telegraph has learned.

The Chancellor's focus is on measures to stem the expected spike in unemployment and boost economic growth.

Tax rises which have been under discussion in the Treasury, including raising income tax and VAT, are likely to be delayed until after growth recovers, sources close to the discussions said on Monday.

"This will not be a consolidation Budget – tax rises won't happen until the recovery is in train", one source said. "If you raise taxes while the economy is struggling at one per cent, you could choke off economic growth."

Discussions over what an economic stimulus package could look like have been ongoing between the Treasury, the Department for Business, Energy and Industrial Strategy and Number 10 for weeks.

The focus will be on stemming unemployment, including youth unemployment, sources close to the talks said.  Options include tax incentives or direct subsidies for employers who hire new staff, job guarantees for young people and a big focus on skills retraining. 

Another possibility under consideration is giving employers who hire new staff a national insurance holiday, similar to a policy introduced by the coalition Government in 2010.

Under those measures, new business set up outside London, the south-east and the east of England were eligible for a NICs holiday worth up to £5,000 for each of the first 10 employees they hired.

A source familiar with the talks said: "In times of crisis, you go into the cupboard and you pull out all the old ideas."

Pledges to boost infrastructure made in the Conservative manifesto are also likely to be brought forward, including updating the UK's broadband. 

The source said: "It's in the pipeline, it's in the manifesto so it's broadly budgeted for and something you can bring forward. Infrastructure projects are a big job creator – that makes them quite appealing."

The source added: "The bigger question is, what is the long-term future of the country? If you're doing a big retraining or infrastructure push, you need to think – do you want to be a green economy? What skills do you want the country to have in the future?"

The recovery measures are likely to be announced in a statement by Mr Sunak in July, as opposed to a full Budget. In May, he warned that the UK faces a "severe recession" on an unprecedented scale with "more hardship to come".

Other economic stimulus options being considered by the Treasury include benefit increases, raising the minimum wage or guaranteeing the living wage for care workers.

"The big priority is what action is needed to get people back to work," economic thinktank the Resolution Foundation said. The thinktank will publish a new report on Wednesday about the impact of Coronavirus on low-paid workers.

Measures will be finalised once the Government has a clearer picture of unemployment levels and other impacts from the recession. The Treasury will be closely watching the impact of gradually reopening the economy over the next few weeks, in particular when more retailers begin to open their doors.

The Treasury said the format of any update from the Chancellor is still under discussion.

Asked last week whether he was planning an emergency Budget, Mr Sunak said: "I can't and won't talk about future Budgets today. But in terms of the format or timing of something like that rather than the content, what I had said previously is that I was planning to have an autumn Budget to get us back onto a cycle of autumn Budgets."

Asked whether he was considering "significant increases in the tax burden" to fund the gap created by the crisis, Boris Johnson said his Government will "meet all our manifesto commitments", adding: "We won't be blown off course."

The Conservative manifesto promised not to raise the rates of income tax, national insurance or VAT.

A source close to the Treasury discussions said: "The general mood music is that this isn't like the financial crisis. Nobody's got an appetite for dealing with debt through austerity. 

"It may be more like post-Second World War, where you live with a high level of debt for a very long time."