Slash stamp duty, scrap the pensions lifetime allowance, and bin plans to raise taxes on the self-employed
SOURCE - Daily Telegraph - 26/05/20
https://www.telegraph.co.uk/tax/tax-hacks/tax-hacks-tax-cuts-rishi-sunak-should-announce-save-economy/
In my last column, I wrote about what the Chancellor might do to raise taxes in an attempt to limit our increased borrowing.
Today I'll explain what I think Rishi Sunak should do. In effect, what I would do as Chancellor. I anticipate a response from many readers that it is a good thing I am not.
I keep in my wallet a 100 billion dollar bill (drawn on the reserve bank of Zimbabwe) as a constant reminder of what can happen when governments believe they can print their way out of excess debt.
I'm concerned about the Bank of England buying large amounts of bonds in the market to help the Debt Management Office achieve a successful gilt auction. It seems to me that these two bodies are essentially different pockets of the same coat.
The leaked Treasury report, covered by The Telegraph several weeks ago, predicts a deficit this year of over £300bn which is an enormous amount of money. However, I take comfort from the words of Andrew Bailey who explained that one of the main purposes of the Bank buying £200bn of government debt – and probably more over the course of the Covid-19 crisis – is to "spread the cost of this thing to society" and help the Government avoid a return to austerity.
As long as markets are prepared to buy our debt at these exceptionally low interest rates it probably makes sense to do so as an alternative to prolonged austerity and large tax rises so that the economy has time to recover and achieve steady growth. Sooner or later, however, the music has to stop. I think that is essentially what the leaked Treasury report is saying (I once had a row with Lord Peston (Robert’s father) live on Radio 5 about this when he suggested that the process could continue indefinitely!)
The debt-to-GDP ratio will need to be reduced but as Roger Bootle explains in his excellent column, this can be done without imposing huge tax burns. Economic growth over time is the way to tackle the problem.
Here's what the Chancellor must do.
1 . Sort out long-term care
Not necessarily a question of tax, but the Government must deliver on its promise for a long-lasting settlement on care funding. Andrew Dilnot was asked to review the alternatives and came out with a comprehensive report in 2011 which struck the difficult balance between state and private financing. There is no perfect solution but I would proceed on the basis of his recommendations. My 95-year-old mother-in-law sold her modest house, the only one she ever owned, to fund the excellent care she now receives in a private nursing home and I cannot think of a better use of her money.
2. Expand council tax to holiday lets
I really do not see why furnished holiday lets qualify for business rates, often at no charge, rather than paying council tax like the rest of us.
3. A 'luxury VAT' rate at 5pc
My suggestion that the Chancellor might reintroduce a luxury rate of VAT attracted some criticism. Perhaps our boat building industry deserves to be spared but if someone can afford £1,000 on a handbag I do not see why they could not also afford and extra 5pc for a luxury VAT rate.
4. Cut landfill tax
My pet hatred is of those who drop litter and chewing gum which shames us as a country, exceeded only by my disgust of fly tippers. Perhaps reducing landfill tax would help to reduce this practice and save local authorities the cost of clearing it up.
5. Keep the sugar tax – and give an incentive to eat more healthily
There is now a clear link between obesity and the outcomes of Covid 19 patients. It also costs the NHS some £5bn a year for treatment of type 2 diabetes. Matt Hancock says that the sugar tax has been a success. Boris is apparently a recent convert. I would increase this tax and possibly apply additional taxes (VAT) on unhealthy fast foods and takeaways, perhaps coupled with some incentives to eat more fresh fruit and vegetables
6. Scrap the pensions lifetime allowance
I can see no justification for the lifetime allowance limit on pension funds which in my view is a penalty on investment performance and should have nothing to do with tax policy. If we need to recover the cost of abolishing it I would take up the suggestion of Ernest Corby (one our many enlightened readers) to cap the amount of the tax free pension commencement lump sum at perhaps £50,000 leaving most pension funds unaffected.
7. Tax dividends paid to offshore investors
Picking up another suggestion, I am not sure of the policy objective of allowing British companies to pay dividends tax free to offshore shareholders. It seems to me that this treatment should be restricted to cases where we have an appropriate double tax agreement in place.
8. Cut stamp duty and encourage downsizing
Since growth is the key to the way out of this, stimulating the housing market is a good place to start because it feeds through to so many parts of the economy. I would cut stamp duty, even if it is only temporary. Something to encouraging downsizing after the children have left the nest would also help (me included).
9. Make it easy for small firms to raise capital
Many unquoted business will struggle to rebuild their capital base. I would remove some of the complex restrictions on the Enterprise Investment Scheme relief and Venture Capital Trusts as a way of encouraging equity investment in the businesses of the future.
10. Reverse plans to hike tax on the self-employed
The Chancellor has made clear his desire to increase National Insurance on the self-employed – this is a mistake. The self employed are suffering particular hardship under the lockdown and need every encouragement to hold on.
SOURCE - Daily Telegraph - 26/05/20
https://www.telegraph.co.uk/tax/tax-hacks/tax-hacks-tax-cuts-rishi-sunak-should-announce-save-economy/
In my last column, I wrote about what the Chancellor might do to raise taxes in an attempt to limit our increased borrowing.
Today I'll explain what I think Rishi Sunak should do. In effect, what I would do as Chancellor. I anticipate a response from many readers that it is a good thing I am not.
I keep in my wallet a 100 billion dollar bill (drawn on the reserve bank of Zimbabwe) as a constant reminder of what can happen when governments believe they can print their way out of excess debt.
I'm concerned about the Bank of England buying large amounts of bonds in the market to help the Debt Management Office achieve a successful gilt auction. It seems to me that these two bodies are essentially different pockets of the same coat.
The leaked Treasury report, covered by The Telegraph several weeks ago, predicts a deficit this year of over £300bn which is an enormous amount of money. However, I take comfort from the words of Andrew Bailey who explained that one of the main purposes of the Bank buying £200bn of government debt – and probably more over the course of the Covid-19 crisis – is to "spread the cost of this thing to society" and help the Government avoid a return to austerity.
As long as markets are prepared to buy our debt at these exceptionally low interest rates it probably makes sense to do so as an alternative to prolonged austerity and large tax rises so that the economy has time to recover and achieve steady growth. Sooner or later, however, the music has to stop. I think that is essentially what the leaked Treasury report is saying (I once had a row with Lord Peston (Robert’s father) live on Radio 5 about this when he suggested that the process could continue indefinitely!)
The debt-to-GDP ratio will need to be reduced but as Roger Bootle explains in his excellent column, this can be done without imposing huge tax burns. Economic growth over time is the way to tackle the problem.
Here's what the Chancellor must do.
1 . Sort out long-term care
Not necessarily a question of tax, but the Government must deliver on its promise for a long-lasting settlement on care funding. Andrew Dilnot was asked to review the alternatives and came out with a comprehensive report in 2011 which struck the difficult balance between state and private financing. There is no perfect solution but I would proceed on the basis of his recommendations. My 95-year-old mother-in-law sold her modest house, the only one she ever owned, to fund the excellent care she now receives in a private nursing home and I cannot think of a better use of her money.
2. Expand council tax to holiday lets
I really do not see why furnished holiday lets qualify for business rates, often at no charge, rather than paying council tax like the rest of us.
3. A 'luxury VAT' rate at 5pc
My suggestion that the Chancellor might reintroduce a luxury rate of VAT attracted some criticism. Perhaps our boat building industry deserves to be spared but if someone can afford £1,000 on a handbag I do not see why they could not also afford and extra 5pc for a luxury VAT rate.
4. Cut landfill tax
My pet hatred is of those who drop litter and chewing gum which shames us as a country, exceeded only by my disgust of fly tippers. Perhaps reducing landfill tax would help to reduce this practice and save local authorities the cost of clearing it up.
5. Keep the sugar tax – and give an incentive to eat more healthily
There is now a clear link between obesity and the outcomes of Covid 19 patients. It also costs the NHS some £5bn a year for treatment of type 2 diabetes. Matt Hancock says that the sugar tax has been a success. Boris is apparently a recent convert. I would increase this tax and possibly apply additional taxes (VAT) on unhealthy fast foods and takeaways, perhaps coupled with some incentives to eat more fresh fruit and vegetables
6. Scrap the pensions lifetime allowance
I can see no justification for the lifetime allowance limit on pension funds which in my view is a penalty on investment performance and should have nothing to do with tax policy. If we need to recover the cost of abolishing it I would take up the suggestion of Ernest Corby (one our many enlightened readers) to cap the amount of the tax free pension commencement lump sum at perhaps £50,000 leaving most pension funds unaffected.
7. Tax dividends paid to offshore investors
Picking up another suggestion, I am not sure of the policy objective of allowing British companies to pay dividends tax free to offshore shareholders. It seems to me that this treatment should be restricted to cases where we have an appropriate double tax agreement in place.
8. Cut stamp duty and encourage downsizing
Since growth is the key to the way out of this, stimulating the housing market is a good place to start because it feeds through to so many parts of the economy. I would cut stamp duty, even if it is only temporary. Something to encouraging downsizing after the children have left the nest would also help (me included).
9. Make it easy for small firms to raise capital
Many unquoted business will struggle to rebuild their capital base. I would remove some of the complex restrictions on the Enterprise Investment Scheme relief and Venture Capital Trusts as a way of encouraging equity investment in the businesses of the future.
10. Reverse plans to hike tax on the self-employed
The Chancellor has made clear his desire to increase National Insurance on the self-employed – this is a mistake. The self employed are suffering particular hardship under the lockdown and need every encouragement to hold on.
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