Rishi Sunak is drawing up plans for temporary tax cuts and spending measures to reboot the British economy after three months of lockdown.

Faced with the deepest recession in three centuries triggered by the coronavirus outbreak, the chancellor is expected to unveil the financial support package in early July.

With the government preparing to taper its furlough scheme, under which it is covering the wages of more than nine million temporarily laid-off workers, it is searching for ways to bolster an economy that faces a sharp rise in unemployment as well as more business failures. Among the measures the chancellor could announce to boost jobs and growth are:

VAT

Two former chancellors, Sajid Javid and Alistair Darling, are urging Sunak to use a temporary VAT cut to boost the economy.

Javid, his immediate predecessor, has called for the sales tax to be reduced to 17% from the current rate of 20% at a cost of £21bn in lost revenue for the exchequer.

When he was Labour chancellor, Darling used a 13-month VAT cut from November 2008 to boost the economy as the financial crisis hit, from 17.5% to 15%. A cut from 20% to 15% today would cost £35bn.

Sunak is also thought to be considering targeted VAT cuts for sectors hit hard by Covid-19, such as hospitality and tourism.

Cutting VAT would be designed to encourage consumers to raise their spending as non-essential shops begin to reopen. This would help retailers and other firms to recover from the sharpest decline in consumer spending on record, protecting jobs and investment.

National insurance

Business leaders are urging the chancellor to cut employers’ national insurance contributions (NICs) to prevent spiralling job losses.

Unemployment is expected to more than double from the current rate of about 4% to hit 1980 levels as the government scales back its furlough scheme, which covers 80% of employees’ wages and is scheduled to end in October.

According to research from the Institute of Employment Studies, NICs are the single largest non-wage labour cost faced by employers. The thinktank said the current system represented a tax of 13.8% on earnings above £8,788 a year, adding about £2,400 to the cost of employing someone on an average wage.

Sunak could raise the threshold at which employer NICs are made across the board. An alternative could be to tailor the measures to specific age groups, for instance by exempting those under 30 to boost employment opportunities for young adults.

Business rates

The chancellor could tweak the system of business rates, which brings in about £30bn for the Treasury each year by levying taxes on firms based on the value of the buildings from which they operate.

Industry groups have called for business rates holidays given to retail, leisure and hospitality firms during the coronavirus crisis to be extended to other companies.

The system has been repeatedly earmarked for reform before, with calls for it to be replaced with an online sales tax, to account for the fact that e-commerce powerhouses such as Amazon have comparatively low rates bills because they operate from warehouses and not a plethora of high street sites. At the budget in March, Sunak announced a “fundamental review” of business rates, due to be published this autumn.

State-backed loans

Sunak could announce more flexible terms for the repayment of the government-backed coronavirus business interruption loans (CBILs) and bounce-back loans (BBLs). Firms struggling to stay afloat during the crisis have borrowed more than £38bn between them through the schemes.

Business leaders have asked for Sunak to take a student loan-style approach to how companies pay them off, by allowing firms to start repayments once they are making a profit. Meanwhile, George Osborne, the former Conservative chancellor, has suggested the debts could be written off entirely to boost the economy.

Mike Cherry, chairman of the Federation of Small Businesses, said: “What we have to avoid is a situation where small firms hold fire on investment and hiring at a moment when we need them most. A guarantee that they wouldn’t have to start repayments until they’re turning a profit would allow them to crack on without fear.”

Training and skills

With unemployment forecast to rise sharply this summer as lockdown measures are only gradually lifted, the chancellor is expected to step up the government’s support for getting people into work or helping them to retrain to find a new job.

Sunak told the Yorkshire Post on a visit to his constituency in Northallerton that he would place education, skills and training at the heart of the government’s economic response to Covid-19. He also said he could look at changes to the apprenticeship levy, which is designed to encourage firms to take on apprentices.

Infrastructure

Sunak has stated his commitment to the government’s “levelling-up” strategy to boost infrastructure spending outside London and the south-east, saying in the early days of the Covid-19 crisis that it remained a priority.

At the budget in March the chancellor outlined £640bn of capital investment over five years for roads, railways, internet, schools, hospitals and other projects. However, the government’s national infrastructure strategy, expected to be published this year to allocate the funding, has been delayed.

Sunak could use next month’s statement to announce funding for new projects that could be more immediately useful for the public as the country emerges from the crisis, including electric vehicle-charging networks, broadband, and cycling and walking infrastructure.