Furlough – What’s the next move? Lessons from chess in the garden for business and tax policy
The picture is of my daughter and I playing chess in the garden. Despite frustrations, lockdown has also created precious moments. This was certainly one of them… In one game, my daughter played so defensively that she boxed in her king, meaning it could not escape from my relatively agricultural attacks.[No fear, it won’t be long until she is beating me!]
Gary Kasparov once said that “Chess is life in miniature”
In addition, there is also a message here for those running businesses in lockdown.
Of course, there are businesses who quite rightly need to regroup and take a defensive approach. There are industries that have been severely curtailed or wiped out pretty much overnight.
However, for those businesses who perhaps have seen little material change in their fortunes, there is a danger that one can retreat unnecessarily to your shell. Simply because this is the general prevailing message and it is what those around them are doing.
My view is that this isn’t the right approach. I am in danger of mixing my metaphors, but one needs to play your own hand.
I guess we will see whether I am right or wrong!
The UK Government COVID-19 – Tax & Furlough Schemes
What is the Government’s next move on tax?
It seems to have been taken as read that the Government will raise taxes, and sooner rather than later.
However, is this the right thing to do?
In what is described as going to be the biggest recession since the second world war, is raising taxes a sensible thing to do.
One phrase which is attributed to Winston Churchill (him again!) “A country which tries to tax itself into prosperity is like a man standing in a bucket and endeavouring to lift himself up by the handle.” This seems highly appropriate here.
It seems to me that the Government needs to resuscitate the economy before trying to tax it. It needs to live with the ‘debt’ for a period.
Otherwise, it runs the danger of boxing in the king.
Let us set the above aside the wisdom of trying to tax the country back into prosperity.
A YouGov poll published in the last few days suggests that most people support:
- A wealth tax, where net worth is over £750k excluding pensions and their main home [but not excluding business!?]; and
- An ‘excess profits tax’ or windfall tax on companies who have made above normal profits during the crisis
What does this tell us? Primarily, it tells us that people are happy for taxes to pay for the crisis on the basis that they do not apply to them!
But seriously, the Government has a significant bill for the support it has provided. How should it try and recover it?
It would seem to me that the fairest way to recover funds which were expended to either:
- provided income support to employees such that they did not lose their jobs; and
- provide income support to the self employed such that they did not lost their livelihoods
As such the obvious, simplest and probably most productive method would be to add a % or two to the rate of income tax for earned income.
This would perhaps be the quid pro quo for those owner managers who feel that they have not had Government support due to the fact they have mainly taken dividends as opposed to salary from their businesses.
If the Government was being more stealthy, it could combine a change in income tax rates with an ‘equalisation’ of NICs such that it garnered additional revenues from the self-employed.
Taking this further, it could scrap NICs altogether and bring in a higher, combined rate of income tax. A higher rate of income tax could also apply to investment income, trust income and dividends.
In addition, one might also increase corporation tax in acknowledgement that they have had access to Government backed loans and that the opportunity to furlough has meant that has been no need to shed staff and then re-grow the workforce later on.
However, I suggest that a YouGov poll on these measures would not be quite so popular!