A briefing produced by the Treasury (reported by The Telegraph) has revealed that the Government is exploring various options to recover money spent to assist businesses and individuals affected by the COVID-19 pandemic. Emma Brown, Tax Partner, Wilson Wright LLP explores how this cost may need to be borne
It may seem too long ago and insignificant now, but I remember back to when our new Chancellor, Rishi Sunak, set 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 many of us were already wincing at the cost. Now the bill stands closer to £300 billion.
My initial worry came from the concern, “how are we going to pay for this?”. That answer never came in the Budget announcements, and that answer seems ever more distant today as public spending is ramped up even further.
This bill must be paid as documents that are beginning to emerge from the Treasury show, and an increase in taxation and a decrease in public spending, seem inevitable.
This is going to be a tough political decision after such big public spending commitments were made alongside the last Budget.
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 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.
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The next step is to look at more ‘controversial’ tax reliefs. People may be made to feel guilty for using perfectly legitimate reliefs, such as Entrepreneurs’ Relief (ER), that are seen as only helping the few – even though an entrepreneur is likely to contribute far more to the economy in PAYE and VAT than they will save from ER.
The UK could explore other options and perhaps consider bringing in a specific wealth tax. The moral theory behind this has always been that the wealthier members of society contribute more than the less wealthy. But what would that look like? Would it replace Inheritance Tax and Capital Gains Tax? This is unlikely.
The answer to all of these questions is, we don’t know, nobody does. Everyone is focused on the here and now, in getting our society through the worst of it.
Whether or not tax increases become a conversation in the 2021 Budget, or sooner, will be dependent on where we stand in our fight against COVID-19.
I cannot foresee the Government introducing significant changes to taxation until financial measures have been reduced or removed. It is only then that we will know the true cost of the COVID19 support measures and the Government can consider placing additional tax costs on businesses and individuals.