Western Morning News (Saturday)
Covid bonds one way to pay debts?
How best can we repay the economic cost of coronavirus, asks Ian L Handford
CHANCELLOR Sunak MP is consulting financial experts and lobbyists on ideas for the Budget on March 31. He know he will have to take “drastic measures soon” so that a start can be made on reducing the UK national deficit and public debt, which is running at 100% of GDP.
Our national debt is likely to spiral to £3 trillion, by Spring 2021. Against this background the Economic and Social Research Council plus lesser known financial institutions were tasked, last year, with establishing a new Wealth Tax Commission to examine whether a wealth tax against all UK citizens with high assets would be either desirable or deliverable.
A new tax would assist HM Treasury recoup subsidies awarded to individuals and businesses since Covid 19 first struck. Sadly, the timing was not good, as a second and now third lockdown has followed since the initial decision. But the Commission was established bringing together economists, lawyers and accountants who set up and eventually completed their recommendations before publishing these on December 9 last year.
The idea of their new “wealth tax” was very radical, so maybe alternatives are needed like one based on investment, as suggested by Ruth Sutherland, the Business Editor of the Dail Mail. She suggests resurrecting the National War Loan Bond idea (NWLB) brought in by Chancellor Neville Chamberlain in 1932. That scheme helped the Government refinance the National Debt of the Great War 1914-1918. Now called a “Post Pandemic Bond” (PPB) scheme it could mirror the old war loan scheme. Meanwhile, the Commission’s suggestion for a “one off” citizen tax – or asset based wealth tax – was seen as preferable to a new annual tax which could involve more administration. Its report fails to suggest a date for commencement, although it prefers such a one hit tax to any annual rise in personal income tax, national insurance or VAT. Those are – together with fuel and alcohol – the usual first choice of chancellors when the coffers need re-filling!
The old NWLB offered a guaranteed interest of 5% to investors, although this was reduced later to 3.5% per annum. The last of the 120,000 investors holding these war bonds (NWLB) were finally repaid in full by HM Treasury on March 9th 2015. The 2020 Commission proposal for a one-off tax would be paid by all UK citizens having more than £500,000 worth of assets (includes housing, pensions, business equity and savings). If the rate of tax was then set at say 5%, this would raise £260,000 billion for HM Treasury. With experts believing there are eight million British citizens with £500k or more in assets, their number would reduced to just three million, if the asset value was to be set at £1million. However, this highlights that perennial problem – how do you collect tax from asset rich but cash poor individuals, fairly?
With taxes paid from earned income or assets sold any excessive new tax may be politically undeliverable. Yet if the start point was set at £1million, just five million citizens would pay, although this might mean a higher rate of tax being charged.
The idea of a one-off wealth-tax, was quickly rejected by Chancellor
Sunak on the basis it was “un-Conservative” and would be against Conservative Party aspirational values. It now seems he is likely to suggest higher rates of Capital Gains Tax (CGT) or Inheritance Tax (IHT) as a way of recouping billions of pounds more from the wealthy. However, even this would not resolve his dilemma over National Debt which is why I believe that some form of fixed rate Post Pandemic Bonds should be seriously examined. Even at low rates of interest of 1%, 2% or 3% over a minimum term of say, five ten or more years might attract ordinary savers, and the wealthy. Currently, there are fifty billionaires residing in the UK. Around the world that figure rises to 2,000. With a guaranteed repayment such bonds could be a win-win for HM Treasury and those that wish to support the British economy.
It is said that Britain is likely to bounce back economically more quickly than most countries after the pandemic ends. But with ten of thousands of firms lost and with hundreds of thousands of employees furloughed, no-one can yet even guess how many of these will ultimately have a job to go back to, at their original workplace.
What we do know is “furlough” alone has cost the Treasury £46 billion a figure still growing. With a £340 billion black hole in public finances which is likely to rise to £400 billion the Chancellor needs to have something new in his red box when he steps up to the despatch box in the House of Commons on March 31.
■ Ian Hadford is a former National Policy Chairman of the Federation of Small Businesses (FSB) - an organisation of Business Lobbyists consulted by successive Chancellors prior to the Budget.
Monday: Even our ever-cheerful columnist Judi Spiers has been suffering a case of the Covid-blues