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Companies Risk Backlash Over Fiscal Support, U.K. Group Says

Posted on Mar. 31, 2020

Independent monitoring of new standards of conduct could provide authoritative assessments of companies’ compliance with tax laws as part of a “new social contract,” according to a U.K. think tank.

Business should “return the favor of huge government support packages” granted during the coronavirus crisis by signing up to new clear standards of behavior, the Social Market Foundation (SMF) said in a March 30 release. “Unless more companies clearly demonstrate ‘reciprocity’ over taxpayers’ support, business risks a political backlash and a further erosion of public trust. While poor performers could face public criticism and be excluded from bidding for public contracts, companies with strong records of paying tax and supporting stakeholders should be celebrated and honored,” it said.

The proposed contract would be silent on tax rates and structures. “That would always be for Parliament,” SMF Director James Kirkup said in a report titled “Returning the Favour.” “But the perception (and reality) of companies’ success in minimizing their tax payments has been deeply harmful to public confidence in business and the political economy that supports it.”

New forms of tax reporting should be devised, offering “far greater transparency about the effective tax rates faced and payments made by business,” Kirkup argued, adding that league tables and other disclosure devices to benchmark firms’ tax compliance should be considered. “Those with the strongest record of compliance and contribution could use that record to enhance their brand,” he said.

“This is a pro-business plan, because so many people in business want ways to demonstrate their commitment to wider society, and [they] know that unless business repays the support of taxpayers during this crisis, it faces a backlash that could cost us all dearly,” Kirkup said. The SMF receives funding from charities, companies, and other organizations, and describes itself as “resolutely independent.”

Business should regard the SMF’s proposed contract as a chance to regain the public’s trust, a Financial Times editorial suggested on March 29.

Measures to “tap into offshore wealth,” combined with “highly progressive ‘excess profits’ taxes” on corporations and higher taxes for wealthy individuals, could help hard-pressed nations to “reap tens, even hundreds, of billions of dollars each year,” Nick Shaxson of the Tax Justice Network wrote on March 27.

‘Long-Term Consequences’

The United Kingdom will be lucky to emerge from the coronavirus outbreak with a fiscal deficit of much less than £200 billion a year, Paul Johnson, director of the Institute for Fiscal Studies, wrote in The Times. Noting that the government’s fiscal response was designed to protect jobs, firms, and incomes, he warned that “the new normal . . . is not going to be like the old normal.” An eightfold increase in universal credit claims, as well as “disruption to education, to supply chains, [and] almost certainly to mental health, will have long-term consequences,” he said. The Department for Work and Pensions is redeploying thousands of staff to process new universal credit claims, Civil Service World reported.

What to do with the tax system is one of several challenges the government will face, Johnson said. He noted that Chancellor of the Exchequer Rishi Sunak had made clear “that the quid pro quo for the very generous support offered to many self-employed . . . will be some levelling up in the tax they pay to something closer to that paid by employees.” Successful businesses and individuals “can surely expect to end up repaying some of the costs of the present support through higher taxes on profits and incomes,” he added.

Sunak had suggested that if taxpayers want to benefit equally from state support in the future, “we must all pay in equally in future.”

Tax professionals welcomed Sunak’s announcement but pointed out that some groups of taxpayers will not benefit from the self-employment income support scheme. Concerns have also been raised about “a lack of support for mid-sized businesses — those too large to be classed as [small and medium-size enterprises] but too small to be easily able to access the COVID-19 corporate financing facility,” the Institute for Government noted in a March 27 briefing note.

Select Committee Inquiries

The House of Commons Treasury Committee will take evidence on the economic impact of the coronavirus outbreak from representatives of the Trades Union Congress and the Confederation of British Industry in a virtual meeting on March 31. The Women and Equalities Committee has invited evidence on the impact that the coronavirus and measures to tackle it are having on people with protected characteristics under the Equality Act 2010. The committee has heard concerns about the impact on particular groups, including gig economy workers, who are “more likely to be young, from a black and minority ethnic background, or have caring commitments,” it said.

The House of Commons is in recess but has not closed down, a statement on the Parliament website noted.

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