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It may seem too long ago and insignificant now, but I remember back to when our new Chancellor, Rishi Sunak, was setting out his first-ever Budget on the 11 March 2020.
At that time the COVID-19 bill was estimated at circa £20 billion of support and I, like many, was already wincing at the cost. Now, when the bill stands closer to £300 billion do I realise how silly it was to think spending would stop there – for £20 billion has become a mere drop in the ocean.
However, my initial worry came from a concern of “how are we going to pay for this?” That answer never came in the Budget announcements (even for the mere £20 billion), and that answer seems ever more distant today as the Government continues to ramp up public spending further.
Of course, this bill will need to be paid, as documents that are beginning to emerge from the Treasury show, and the easy targets here will obviously be an increase in taxation and a decrease in public spending.
This is going to be a tough political decision after such big public spending commitments were made alongside the aforementioned Budget by Boris’ new Government.
Will the Chancellor and the Government be so bold as to reverse these targets? Can a U-turn be easily explained to the British people because of the unanticipated COVID-19 disaster that unfolded before us, the severity of which they could not have possibly of known at that time? Do they have any other choice? Possibly, and though these matters are not certain, taxes are one of the two things in life that you can be sure of.
So, what might an increase in taxes look like? With Corporation Tax at a historically low rate (19 per cent), might we sacrifice our post-Brexit position as a low tax market to remain competitive in the European markets by increasing this rate? Possibly, but as a tax, it does not bring as much to the coffers as Income Tax, National Insurance and VAT, for example (about nine per cent compared to 25 per cent, 19 per cent and 18 per cent respectively).
The headline grabbers will no doubt tell you that the Government will be doing everything in their power to crack down on those morally corrupt tax avoiders, when in truth they have been doing that for quite some time already, with varying degrees of success.
The next step must be to look at more ‘controversial’ forms of legitimate tax relief. People could be made to feel guilty for using perfectly legitimate tax reliefs, such as Entrepreneurs’ Relief (ER), that are seen as only helping the few – when in fact an entrepreneur will contribute far more to the economy in PAYE and VAT than they will likely save in claiming ER.
We as a nation could explore other options and perhaps go the way of the French and consider bringing in a specific wealth tax. The moral theory behind this has always been one that the wealthier members of society contribute more than those who are less wealthy – who could argue with that logic? But what would that look like? Would it replace Inheritance Tax and Capital Gains Tax? This is unlikely.
The answer to all of these question is, of course, we don’t know, nobody does (not even the Chancellor or the Treasury at this point). Everyone is so focused on the here and now, in getting our society through the worst that this new enemy has thrown at us. If they hope to enjoy any tax revenue in future they must ensure that people stay in work and businesses keep their doors open so that we can recover from the inevitable recession (if we are not in one already) as quickly as possible.
This will ensure that the NHS has the necessary resources to help those on the front line. No-one has paused to ask how we will pay for it, not while there are lives to be saved.
In typical British style, I suspect that the answer will be that we will, because we must.
Whether or not this becomes a conversation in the March Budget 2021, or sooner, will be dependent on where we stand in our fight against COVID-19 and the strength of the economy, but if we do not start to talk about the problem are we not just making that conversation all the more difficult further down the road?
I cannot foresee the Government introducing significant changes to taxation until financial measures have been reduced or removed. For one, it is only then that we will know the true cost to the public coffers and for two it would work against the steps they have already taken to not place additional costs on businesses and workers that are already struggling.
While it looks doubtful that these measures will be extended into 2021, the potential for further extensions to schemes, such as the Coronavirus Job Retention Scheme, cannot be ruled out – it would be foolish to speculate on when this change will come, but come it will.
As a tax adviser, it is hard to say this, but the tax future looks to be a bleak one and an increase of taxation not being a question of if, but how much and when.
I suspect that even though we are currently living in a world where cash is king, some people may start to trigger tax charges at today’s known, and likely lower rates, to take advantage of the known, rather than the unknown. If you, the reader, are in this position then please do feel free to give me a call.