In the limelight: October ’20

October 2, 2020

As the UK’s debt mountain continues to grow amid unparalleled Government peace-time borrowing to battle COVID-19, Chancellor Rishi Sunak faces tough decisions on how to close the country’s yawning financial deficit. With hundreds of billions of pounds already committed to the cause, the prospect of rising taxes has been mooted. But should the Government be looking elsewhere? Steven Hugill speaks to North East business figures about the situation and hears how alternative ways – beyond rudimentary tax increases – have the potential to recharge the economy

When Rishi Sunak waited on customers at a London branch of Wagamama in early July, dishes of curry and teppanyaki weren’t the only things on the menu.

Wearing a hastily made name badge and engaging patrons with stilted small talk, the Chancellor was ceremonially serving up his Eat Out to Help Out discount scheme.

As publicity stunts go, it came straight from the first page of the Downing Street photo-opportunity manual, which almost always ends with awkward poses and embarrassed members of the public.

This one was no different, with the North Yorkshire MP drawing much mirth for his attempts to hand a chicken dish to a couple of vegan diners.

With Eat Out to Help Out thrown into COVID-19’s choppy waters as a financial lifebuoy for food establishments, the last thing the Chancellor needed was to offer people something they couldn’t stomach.

Yet he may have to.

With borrowing continuing to escalate in the face of wide-ranging action aimed at protecting jobs and recharging the economy, the Chancellor knows full well – like a punter gambling on the many racehorses trained within his constituency – the consequences of continuous outlays.

For all the spending, there must be a reversal process, an easing of the gap between income and expenditure.

And that, say analysts, who include officials from the Institute for Fiscal Studies, seems almost certain to come from tax rises.

To return to the food theme, such a prospect for individuals, families and businesses, who have dined on a monotonous main course of financial uncertainty for months, is about as inviting as the nauseous feeling a rich, heavy dessert delivers at the end of a big meal.

It would also be somewhat unpalatable for a Government whose recent General Election victory was predicated upon a pledge to freeze income tax, VAT and National Insurance.
But 2020 is a dramatically different world to the one we knew at the back end of 2019.

Before the Chancellor’s latest policy announcement on the Government’s Job Support Scheme, which will supersede the furlough programme from November 1, official figures showed overall borrowing for the financial year to April 2021 could touch nearly £400 billion.

To put that into perspective, annual lending was expected to reach £55 billion prior to the pandemic.

So how can the Chancellor act decisively to combat the financial deficit?

One significant option, says Peter Glenton, a partner at North East financial advisory firm Ryecroft Glenton, are tax incentives.

These, he says, would help attract fresh overseas investment and strengthen the country’s – and North East’s – tech sector by greasing the talent pipeline that, in turn, would deliver next generation development.

It would also, Peter tells North East Times, help reduce the North/South divide.

“What will be much harder for the Government to achieve than choosing which taxes to raise will be pump priming wealth generation through more and better jobs to increase the amount everyone is earning and the number of people paying tax,” he says.

“In addition, a consistent concern for every Government has been to try to reduce the geographical apartheid between London and the rest of the country – is the fallout from COVID-19 a perfect opportunity to tackle this inequality?

“The Government should make the UK extremely attractive for foreign investment, which ties in perfectly with the Brexit agenda.

“Tax incentives will help bring offshore money to the UK and target it on the right geographic areas – outside London – and on the creation of future-proofed jobs, in particular in the tech and digital sectors,” adds Peter.

“If managed carefully, offering tax incentives to overseas money should not reduce the current tax take and instead add to it.

He continues: “COVID-19 has sped up the digital transition and by directing tax incentives at areas that already have a decent tech infrastructure, which include the North East, the Government can help build much stronger tech clusters.

“There are too many firms competing for too little talent with the knock-on consequence that many UK tech operators have to hire from overseas.

“Therefore, the Government should offer financial incentives to tech firms to create more entry level jobs for school leavers and graduates, and fund mid-career courses that help mature workers transition to a tech role.”

Peter’s desire for significant tech sector investment finds equal favour with Norm Peterson.

The chief executive of Newton Aycliffe-based fintech company Growth Capital Ventures says such support would supercharge Britain’s economic engine by helping introduce a raft of new small and medium-sized businesses.

“Raising standard taxes will undoubtedly be an unpopular move,” says Norm.

“There must be a focus on creating new job opportunities in key industries such as the technology sector.

“As consumers and businesses rely more on technology as a result of COVID-19, we need to enable the creation and scaling of the UK’s next wave of innovative start-ups and fast-growth SMEs,” he continues.

“Building these sustainable businesses and supporting entrepreneurs and innovators is going to be critical to the UK economic recovery.”

Norm also says the Government must look at the impact of programmes such as its Coronavirus Business Interruption Loan Scheme, and ensure further action supports companies in tax-efficient ways.

He says: “Tax-efficient structures, such as the Enterprise Investment Scheme and Seed Enterprise Investment Scheme, can help businesses reduce tax liabilities and leverage growth.

“The Government may also consider more generous tax relief on venture capital schemes that can act as a catalyst for business growth.

“It is important that alternative finance streams are opened up to SMEs so they can propel a sustained economic recovery,” he adds.

“If this happens, there will be less need for the Government to impose draconian spending cuts or tax rises that will hurt the economy.”

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