If Rishi Sunak lives up to his 2020 pronouncements, that COVID support will have to be paid for at some time in the future, we can expect tax increases in the Finance Bill due to be announced February 2021.
He needs to do this in such a way that we are encouraged to spend some of the personal savings that have been accumulated in the past year.
If his tax changes further depress economic activity there would be no quick exit from our present predicament and we may have to face yet another round of austerity.
Although professionals are encouraged to contribute to a debate on how tax is used in our economy, it is generally political considerations, rather than economic indicators, that seem to dictate policy.
What does history tell us?
Based on past performance the Treasury does seem to be cautious and predictable. There is no reason to believe that our present Chancellor will act against their guidance.
One indicator that does seem to be directing fiscal policy decisions is the need to repay the additional currency that Government has pumped into the economy to counter COVID disruption. Conservative economists consider this to be national debt that has to be repaid, whilst other progressive economists see the funds created as the Government lending to itself and there being no need to repay whilst there is slack in the economy, i.e., unemployment.
A balancing act
Whatever your point of view, 2021 should surely be a period when companies are encouraged to invest, to reduce unemployment, and consumers feel secure and able to spend. In this way we can steadily climb out of the recession caused by the COVID pandemic.
How this can be achieved using taxation policy remains to be seen. The Chancellor’s position as he treads this slender tightrope is not to be envied. 2021 could prove to be a challenging year for SMEs across the UK. Let us hope that the emerging vaccines do their work and that we can gradually return to normality. As ever, there will be tax changes in the coming year, but we may need a crystal ball to determine what they may be.
MJB Avanti remain on hand for friendly, jargon free tax advice and accounts preparation for individuals and businesses, call us to discuss how we can help you (08000) 388 799
Source Informanagement