Last week I spoke with my client who is of the view that lockdown reveals democracy is not working.
There is a conflict he said between doing what is right for the country and pandering to the voter to get re-elected.
The average man or woman in Middle England, where the battleground will be for the next general election wants to see higher taxes for the rich – to pay off the debt the government has created post lockdown and for tax cheats to be squeezed until the pips squeak.
All leaders, including Boris Johnson, no doubt, want to be re-elected – so they want to do what the people want rather than show strong leadership and do what is right for the country, to rebuild our economy.
In Singapore, where I have a close connection with a leading lawyer – the current government is focussed on attracting wealth creators into the jurisdiction to stimulate the economy and employment. In this country however we have introduced greater ‘fairness’ to please the average voter and removed many of the tax benefits which once applied to foreigners to encourage them to live here – these wealthy foreigners are now attracted to Singapore, Portugal and even Italy
It was only a few weeks ago that there were leaks to the press, that No: 11 was considering raising tax rates and in particular a suggestion that capital gains tax rates could be raised to match the rates of income tax, with a top rate of 45%.
Why would anyone take the risk of investing in a business if the profit they made as a result of taking a risk was taxed as heavily as income?
Wealth creators need to be incentivised to do business in this country – not driven away with high taxes and punitive penalties if they make a mistake.
And now rather than give clarity the Chancellor has cancelled the November budget under emergency measures as Boris Johnson announces a further lockdown which could last for six months. Where will this take the country as we leave the EU?
At present the Government borrowing for the current financial year is projected to reach £300 billion and the total debt levels to £ 2 trillion. We have spent £35 billion on the furlough scheme alone – and no end in sight with a projected 2 million unemployed.
If I were a professional Prime Minister rather than one seeking re-election at the next vote, I would start to introduce optimism. There is no doubt in my mind that in due course, we will learn to live with covid 19 – medicine will be found to treat better the disease, we will continue to wear masks, sanitise our hands and keep our distance. The numbers of deaths and suffering will come down and we will have a greater understanding of who and how to work from home.
The level of debt even though extreme may turn out not be so bad – interest rates are low, so in practice all we need to do is to service the interest which is going to be possible - provided we can stimulate spending and encourage businesses to re-engage those put out of a job as a result of this pandemic. Interest rates are likely to remain low or even slip into negative interest rates which means the amount to be repaid goes down.
With regard to taxation – if I were a professional PM rather than a PM seeking re-election I would take the rates of taxation and VAT down for the worst hit businesses and for those which employ the most people such as the hospitality sectors.
I would then re-introduce the £10million break for entrepreneurs to encourage them to keep their business and make them even bigger before a sale. Reducing the relief to £1million merely encourages entrepreneurs to sell too soon rather than stick with it until the gain reaches £10 million.
I would then introduce attractive measures to foreigners to come to the UK with their businesses and wealth. Under the current non-domiciled rules, foreigners are encouraged to live in the UK but to leave their wealth and businesses abroad – ummmmh!
Furthermore – and probably most controversial – I would amend the penalty regime for non-payment of tax so that there is no minimum penalty of 100% tax. There are a lot of entrepreneurs who will be investigated and ordered to pay tax and penalties when they have made a genuine mistake, such as to make a gift of an asset full of gain without declaring the capital gain to be taxed. Most people can be excused for not thinking they have made a gain if the asset has not been sold.
The tax law is now extraordinarily complex and most professionals, let alone our clients, can make genuine mistakes. There is no relief from penalties a genuine mistake is made. The minimum penalty is still 100%
It is often assumed that the rich do not pay tax because they engage sophisticated tax professionals to help them cheat. The reality is that tax payers now need to engage the best tax professionals to make sure they pay the right amount of tax – while making the best use of such reliefs and exemptions as are available.
Tax is now too expensive to get it wrong.
I am optimistic however that by cancelling the November budget, until after the furlough scheme has ended and we have left the EU, the Government will see how badly hit businesses are in this country, and how dependent we are upon them to build up our economy that it will take such measures as are needed to get business back on track which means giving tax incentives to invest and grow, not to raise tax rates and squeeze the innocent taxpayer who made a mistake.
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