Sunak facing a tough book-balancing act – Andrew Paterson
The Chancellor has committed many billions to the health and economic crisis. How will he pay it back, asks Andrew Paterson
Who would be a politician – especially during a health and economic crisis unlike anything else in living memory? Despite the fact that Chancellor Rishi Sunak has committed a staggering £190 billion to support the economy, he is still facing stinging criticism.
The most recent brickbats flew in from the Commons Public Accounts Committee, which described the Government’s failure to plan for the economic impact of a pandemic as ‘astonishing’. The chair of the Treasury Committee also waded in, accusing the Chancellor of turning his back on some people in need.
Closer to home, the Scottish Government is desperate for new financial powers to allow it to borrow £500 million this year to aid economic recovery. Huge figures all round that will need to be paid back.
Playwright George Bernard Shaw once said: “Political necessities sometime turn out to be political mistakes.” The Chancellor might well reflect that, despite his best efforts, whatever he decides to do to support the economy and then subsequently to balance the books may well be labelled a mistake.
And it is that point of how he will actually pay for the support that is exercising the minds of many in the professional advisory community, particularly in tax. So how is the Chancellor going to settle up? He must already, figuratively speaking, be scrambling around looking down the back of the sofa at Number 11.
He does, however, have a myriad of options, one of which is the introduction of a wealth tax. Pressure is coming from the Labour Party to look into this as well as from a group of super-rich people from around the world, who are calling on governments to hit them with higher taxes.
This group includes British filmmaker, Richard Curtis. A recent You Gov poll showed 61 per cent of people questioned favoured a wealth tax on those who had assets of more than £750,000 (excluding pensions and the value of a main home).
On the face of it this seems a good idea, but experience from countries around the world might tell a different story. In Europe only four countries have a wealth tax – namely Spain, Norway, Switzerland and Belgium. France and Germany have abolished theirs and indeed such a tax usually contributes only around 1 per cent of the total tax take. In France it actually amounted to just 0.5 per cent of total tax revenues and many of the super-rich simply moved elsewhere.
The Chancellor may decide it is not the game-changer he needs and he will simply have introduced a tax that is difficult to administer. A key issue would revolve around what assets would be covered and the possible impact on people who are asset rich and cash poor.
A more likely scenario to refill the coffers emerged within the last month when Mr Sunak asked the Office of Tax Simplification (OTS) to look into Capital Gains Tax (CGT). The more suspicious advisers might think he has left the starting blocks in a race for a tax grab.
The Treasury, however, simply described it as standard practice and stated it was the last of the major taxes to be reviewed. The top rate of CGT, at 28 per cent, is relatively low compared to Inheritance Tax (40 per cent) and the top rates of Income Tax (40+ per cent) and this may represent a chance to equalise them or at least bring them closer together. The OTS review means it is possible, but not inevitable.
He, along with his Scottish counterpart Kate Forbes, must also separately weigh up the impact of any changes to income tax. We already have different rates north of the Border and an independent Scotland, should that happen in the future, would very probably see divergent rates of both income and capital taxes from the rest of the UK.
As the old adage has it, a government that robs Peter to pay Paul can always count on the support of Paul.
The autumn budget looks like the time we will find out how skilled the Chancellor is at balancing the books and the competing needs of those he was elected to serve. Inevitably we will see change, but what that ultimately looks like, as with so many aspects of life in the UK today, remains uncertain.
Andrew Paterson is a partner with Murray Beith Murray
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