It stands to reason that the huge bill being incurred to help employers keep staff on the books and – for some self-employed to cover some of their lost income, not to mention the hit to the economy from business shutdown and a fall in individual spending will need to be balanced out in some way. And raised taxes loom as an obvious spectre.
The Telegraph flouted a confidential Treasury assessment suggesting the coronavirus bill for the Exchequer will come to £300bn this year. We have already covered the implications for the pension triple lock and a hike in income tax could be employed. Speculation will abound as to whether pension tax relief will be hit or ISA allowances reviewed.
John O’Connell, chief executive of the TaxPayers’ Alliance, said: “The government has a tough job on its hands in repairing the public finances, but increasing a 50-year high tax burden should not be a part of the plan.
“The government’s help so far has been a lifeline for millions of families and thousands of small businesses, but taxpayers must also be protected in the recovery.
“There must be a relentless focus on economic growth, and that should mean a strategic plan for tax cuts and simplification.”
George Bull, (pictured above) senior tax partner at accountant RSM UK says tax increases alone will not be sufficient to get the country back on its feet and that direct investment by the Government will be required.
Bull suggests that now might be the time to sort out the future shape of the tax system but concedes that reform of the UK’s devolved tax system does not have a distinguished history.
“Often, it’s driven by short-term interests and policy objectives, with hastily drafted legislation rushed through Parliaments without sufficient debate.”
Citing examples of IR35, pensions liberalisation, inheritance tax gifts with reservation, the diverted profits tax, the loan charge and the digital services tax.
“As the first wave of coronavirus appears to be receding, we should expect three more things of the tax system: it should be supportive of growth, it should be administratively straightforward, and it should be manageable by HMRC.
“The Institute for Government has added its voice to calls for tax reform with a suggestion that the government should establish a tax commission. This would help generate public discussion of the problems with the current tax system, how revenue is – or could be – raised and provide a forum to debate how the state should be funded after COVID-19. Without such public discussion, the government’s space for reform will be limited. The tax commission should pull together evidence on – and explain to the public – the problems with the current tax system and generate debate about and build consensus around options for reform.
The Office of Tax Simplification (OTS) which exists to provide independent advice to the government on simplifying the UK tax system to make things easier for taxpayers, Bull suggests could do the job of a tax commission.
To install simple, fair taxes supportive of growth, administratively straightforward and manageable Bull list six starter areas:
• Reducing inequality and ending child poverty.
• The tax base: who should pay how much tax and on what?
• The reform of National Insurance Contributions and the taxation of workplace income.
• The taxation of wealth and capital. Has inheritance tax outlived its useful purpose? Should the UK introduce a wealth tax? Should council tax be reformed?
• What social ‘goods’ should be encouraged through tax reliefs? How should the effectiveness of these be measured?
• Some certainty as we transition towards more carbon-based taxes.
Bull says the UK Government has only one chance to get out its message on the role of tax in the economic recovery from coronavirus: short-term tax cuts would certainly be welcome but he says: “The Government would almost certainly shy away from this approach in the knowledge that tax increases would subsequently be required at a time when the electorate might be less susceptible to its message. It’s more likely, therefore, that the coronavirus recovery roadmap will signpost modest tax increases over the medium term 2021-2023.
“Tax increases will of course not be sufficient on their own to secure the Government’s objectives. Direct investment by the Government in areas such as public transport, renewable energy and improved housing will be required. At a time when borrowing costs are low, this could be a particularly cost-effective way of getting the UK economy back on its feet, even after the increased Government borrowing to fund coronavirus support to people and business.
“By creating jobs, by putting money in people’s pockets and therefore equipping them to spend, a carefully judged balance between taxation and public expenditure could go a long way to restoring the British economy to health after the coronavirus has passed.”
Meanwhile if you have funds to invest take advantage of your ISA allowance and the tax benefits of putting money into a pension. The tax efficiencies of these vehicles may not disappear or even be reduced but the sooner you avail yourself of them, the more time your investment has to grow long term.
Further reading: Cashing in my pension during the coronavirus crisis