The impact of this Pandemic continues:
Accounting for COVID-19
Andrew Likierman, professor of management practice and former dean of the London Business School, warns that company accounts centred on periods during the coronavirus outbreak “must be approached with caution” as they are “not like other accounts”. Reflecting on the role of judgment, he says that even before the pandemic, the issue regularly topped the Financial Reporting Council list of areas of concern. He goes on to detail a framework endorsed by the Brydon Report which serves as a guideline on how to improve the chances of getting judgements right with regulators, preparers and users.
Source: ACT (03/10/2020)
Economists tell Sunak to learn from history
An open letter to Rishi Sunak organised by the Institute of Economic Affairs (IEA) urges the Chancellor to look to the tax policies of the 1990’s for inspiration when returning the economy to growth in the aftermath of the pandemic. The signatories, who include over 30 economists, academics, business people and politicians, say cuts top corporation tax, a top rate of income tax of 40%, stamp duty of no more than 4%, VAT at 17.5% and a “light regulatory burden on all productive sectors” helped to generate productivity growth and strong GDP during that decade. Neil Record, chairman of the IEA and author of the briefing paper, said: “I have looked back at periods of UK economic success and growth within the past 40 years. I have identified the best decades within that period, and analysed the taxation, fiscal and regulatory policies that helped create those successful periods. If decisions made now can recreate that success, then despite the terrible damage wrought on the economy by COVID-19, the future can be bright.” The IEA’s director-general Mark Littlewood further explains the think-tank’s reasoning in a piece for the Times.
Sunak to hold off on tax hikes until the dust settles
A day after saying that the Tories had a “sacred responsibility to future generations to leave the public finances strong” the Chancellor has signalled that he will hold off on tax rises and Budget cuts until the UK’s economic recovery is further along. Rishi Sunak told Sky News that he would restore the public finances to a more sustainable level “over time” as the country’s main priority now should be restoring jobs and getting the economy moving again. HIs comments come as Tory MPs back a call from the Institute of Economic Affairs for the top rate of income tax to be capped at 40% and for VAT to be slashed to 17.5% for all industries.
Source: City AM (07/10/2020)
More complaints against the taxman upheld
Figures from the Adjudicator’s Office show that 44% of complaints made about HMRC were found to have merit in the 12 months to April, up from 35% in the year before. Analysis has found that the Adjudicator’s Office resolved 1,024 complaints against HMRC in 2019/20, of which 61 were substantially upheld and 297 were partially upheld. HMRC commented: “We take complaints very seriously and resolve the majority ourselves. There’s always room to improve, so we work with the adjudicator to provide the best possible service.”
Source: The Times (05/10/2020)
Practical difficulties and low revenues mean a wealth tax won’t work
With the idea of a wealth tax becoming more popular amid the coronavirus downturn, the Telegraph’s Russell Lynch explains that fewer countries impose one on their citizens now than in 1990 due to the practical difficulties of such a levy and the relatively low revenues. There are now just four developed countries using a wealth tax: Spain, Norway, Switzerland and Belgium. That compares with 12 in 1990, according to the OECD. Helen Miller, deputy director of the IFS, says wealth taxes “have never raised very much money” and they are notoriously hard to design without creating distortions. That is before the administrative issues are considered. “The big challenge of practicality is that we don’t have a comprehensive measure of people’s wealth,” Miller adds. Lynch goes on to cite Labour chancellor Denis Healey, who in his memoirs said, “you should never commit yourself in Opposition to new taxes unless you have a very good idea how they will operate in practice. We had committed ourselves to a wealth tax: but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.”
Source: The Daily Telegraph (07/10/2020)
BBLS losses could top £26bn, NAO says
Analysis by the National Audit Office suggests British taxpayers could lose £26bn on the Government’s Bounce Back Loan Scheme due to a lack of credit controls and exploitation by criminal gangs. The audit office forecast costs of between £15bn to £26bn based on losses of between 35% and 60%, on the assumption that lending reached £43bn. But a worse-case scenario puts defaults as high as 80% or £34bn. A government spokesman said: “Our loan schemes have provided a lifeline to thousands of businesses across the UK. We targeted this support to help those who need it most as quickly as possible and we won’t apologise for this. Any fraudulent applications can be criminally prosecuted for which penalties include imprisonment or a fine or both.” The Mail’s Alex Brummer comments: “This whole episode is a warning of the dangers of being seduced by well-intentioned but badly-thought-out credit plans. Authors of Boris Johnson’s 95% mortgage loans have been warned.”
Pandemic insurance case goes to Supreme Court
The Financial Conduct Authority’s (FCA) test case over coronavirus-related insurance claims will head to the Supreme Court after the High Court agreed to a fast-track appeal. The case was brought by the FCA against eight insurers to clarify policy wordings and whether policyholders were due payouts. With insurers and the regulator set to take disputed claims to the Supreme Court, small firms face waiting until next year to find out if they will receive payouts for pandemic-driven disruption. Sonia Campbell of law firm Mishcon de Reya, who is leading one of two action groups of policyholders, said insurers opting to appeal was another “nail in the coffin for small businesses”.
Source: Financial Times (02/10/2020) Daily Mail (02/10/2020) Reuters (02/10/2020)
SMEs detail pandemic impact
A poll of UK alumni of Goldman Sachs’ 10,000 Small Businesses programme shows that 99% believe they will survive the coronavirus crisis, assuming there are no further national lockdowns. The poll saw 64% say revenue had decreased, while 44% had reduced headcount and 75% had used the furlough scheme. It was also shown that 45% of firms have changed their business model due to the pandemic, with three quarters expecting this to be a permanent change.
Source: The Daily Telegraph (01/10/2020)
Ministers look to tackle late payments
Ministers are drawing up plans that would see large firms fined or issued court orders if they fail to pay smaller suppliers promptly, with the powers of the Small Business Commissioner set to be enhanced. It is estimated that SMEs were owed £23.4bn in late payments last year.
Source: Financial Times (01/10/2020) The Times (01/10/2020)
Sunak prepares new support for businesses hit by local lockdowns
The Chancellor is preparing new support measures for those businesses worst affected by new local lockdown restrictions. The new package comes ahead of a new three-tier local lockdown system designed to end confusion over Covid restrictions.
Source: Financial Times (07/10/2020) Daily Mail (07/10/2020)
GDP slip not as severe as feared
Revised figures from the Office for National Statistics (ONS) show the economy contracted by 19.8% in Q2. Although the decline in GDP hit a record level, it is less severe than initially thought, with a previous official estimate suggesting GDP fell 20.4%. The slip in GDP across Q1 was also revised, from 2.2% to 2.5%. The analysis shows that in the first six months of 2020, the economy shrank by 21.8%, exceeding a previous estimate of 22.1%. With the coronavirus lockdown shutting much of the economy, household spending in Q2 was down £80.5bn, representing a fall of 24.2%. The ONS report also reveals that households saved a record 29.1% of their income in Q2, a steep jump on the 9.6% recorded in Q1. Meanwhile, Bank of England chief economist Andy Haldane yesterday said GDP is set for another record quarter in Q3, with the economy set to expand by 20%. Source: The Times (08/10/2020) The Guardian (08/10/2020) Financial Times (08/10/2020) The Independent (08/10/2020) City AM (08/10/2020)
Economy likely to have grown 5% in August
Figures released later this week are expected to show that the economy grew 5% in August. This would mark a decline on the 6.6% month-on-month rise recorded in July and the 8.7% increase seen in June. Analysis from research group Consensus Economics shows that the average forecast from analysts for GDP over 2020 has slipped from a fall of 9% three months ago to 9.9% a month ago to 10.1% now. However, growth projections for 2021 have risen from 6.1% to 6.4% to 6.5% now.
Source: The Mail on Sunday (05/10/2020)