Beware the Ides of March
William Shakespeare may have committed this phrase to immortality by allying it to the untimely murder of Julius Caesar; however, in Ancient Rome the “Ides” were religious festivals which occurred in early March with the tradition that all debts needed to be settled by this date.
In his budget on 3rd March, Chancellor Rishi Sunack will be undertaking the herculean task of wrestling with and managing the UK’s accumulated and record £400bn debt whilst at the same time ensuring that the fragility of any post-pandemic / Brexit economic recovery is unimpeded.
As ever, there is plenty of advice from economic commentators, often varying, on how to raise funds (taxes); but all agree that a strong economy in the coming years provides the best solution. So, what can be done?
Capital Gains Tax reform and reducing tax relief on pension contributions are two areas that the Chancellor may look to review. Reducing the annual individual CGT exemption of £12,300 will be politically more acceptable than increasing general taxes, and reducing the pensions tax relief for higher rate taxpayers fairer than increasing VAT.
However, there are other schools of thought as to what the Chancellor could do; and one idea is to start taxing companies who are currently not paying tax on services offered. These are essentially platform businesses in what is called the “sharing economy”. These include Airbnb and Uber amongst others. This is a developing market, growing quickly; but operators are currently not paying VAT. Expect the “popular” closure of other tax loopholes; however, whilst helping to raise revenue, the Chancellor needs to ensure that there is enough to stimulate and support a COVID-19-ridden, post-Brexit economy.
There is also another way of looking at this. Just as with a mortgage, it is not the size of the debt that is the issue, but the ability to service it; and this should help the UK and the Chancellor. Interest rates are at all-time lows and even negative. The Government can borrow easily at a rate significantly below GDP levels; hence the stronger the growth, the larger the receipts enabling debt to be reduced. This explanation could allow added stimulus to the worst hit sectors, little in the way of significant tax increases for the majority, and hence a more palatable recovery of job restoration/creation. A policy of growth, and not a return to austerity. We would, however, have to keep confidence in our currency, our bonds, and our Government; but – with a Brexit solution, numerous vaccines, recovering GDP and a potential consumer boom following the lack of spending opportunities in 2020/early 2021 – we can start to see a positive outlook for the UK.
In the immortal words of Kenneth Williams (playing Julius Caesar): “Infamy, infamy…” Just maybe the Chancellor need not “have it in for us”.