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Rachel Reeves is considering raising the threshold at which businesses start paying VAT in a rare move to boost growth.

The Chancellor is understood to be reviewing the VAT regime as she prepares to launch a raid of at least £20bn to balance the books.

Rachel Reeves is also believed to be considering raising taxes for homeowners and landlords, as well as a stealth raid on working people.

She will warn next week when she returns to Parliament that that the economy is “stuck”. She is preparing to make raising productivity the centrepiece of her second Budget.

Treasury officials fear that a growth downgrade by Ms Reeves’s official spending watchdog will blow an even bigger hole in the public finances.

Despite the gloomy economic backdrop, 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.

However, such a cut is likely to be opposed fiercely by Torsten Bell, the pensions minister who is playing a key role in drawing up the Budget plans.

Mr Bell’s former think tank, the Resolution Foundation, has called for the threshold to be slashed to £30,000.

Sources said Mr Bell was making his presence felt at the Treasury. “He likes the sound of his own voice,” said one insider.

The Tony Blair Institute, the former prime minister’s think tank, is also calling for the threshold to be effectively eliminated, though experts have warned that this could fuel inflation at a time when the Bank of England is already struggling.

It is understood that Dan York-Smith, a long-serving Treasury civil servant who last week moved to No 10 help Sir Keir Starmer, is also a big advocate of eliminating reliefs.

However, businesses have long complained that the current threshold acts as a barrier to growth, forcing them to shut their doors to avoid making too much money.

Small firms that turn over less than £90,000 are exempt from charging their customers VAT.

However, the rules state that once businesses breach the threshold, sales tax must be charged on every transaction.

This means that businesses that make even a few pounds over £90,000 currently face a five-figure tax bill.

Sources highlighted that the Office for Budget Responsibility (OBR) had determined that former chancellor Jeremy Hunt’s decision to raise the threshold from £85,000 in 2024 increased revenues for the Exchequer by the end of the decade, even though the policy had short-term costs.

Another option would be to eliminate the cliff edge by smoothing the tax rates paid once the threshold is breached.

“They are desperate for anything that will lift growth,” said one source close to the discussions.

Ms Reeves is also looking at ways to go further and faster to ease planning rules, as she looks for ways to increase growth and living standards that do not place a big burden on the public purse.

The fiscal watchdog has previously warned that the current VAT registration system for businesses places an “administrative burden” on firms that “creates an incentive for firms to cap their annual turnover just below it”.

The Government claimed the tax cut in 2024 would take about 28,000 of businesses out of paying VAT.

The Federation of Small Businesses confirmed the organisation had discussed raising the VAT threshold with the Government as a way to increase small business growth and generate more tax revenue.

Craig Beaumont, of the Federation of Small Businesses, urged the Government to take advantage of Brexit freedoms.

He said: “Outside the EU, Britain has a rare advantage – we don’t have to lock ourselves into low VAT thresholds like our European neighbours. That gives us the freedom to set it at a level that actually helps entrepreneurs and growth.”

The FSB has previously advocated lifting the threshold to £100,000.

Mr Beaumont added: “This would let thousands more small businesses keep trading rather than shutting up shop early. It would spare them from the single most painful tax to administer, which swallows up 45 hours – an entire working week – every year.”

A Treasury spokesman said the best way to strengthen public finances “is by growing the economy – which is our focus”.

They cited planning reforms as an example of delivering more growth outside of tax changes, adding: “We are committed to keeping taxes for working people as low as possible.”