IoD calls for business tax cuts to boost post-Covid recovery
The Institute of Directors has joined the growing chorus of business groups calling on Finance Minister Rishi Sunak to cut business-related taxes to help restart the economy after the coronavirus crisis.
In a submission to the Treasury ahead of an expected economic statement from Sunak next month, the IoD warned of potential job losses as the government’s multi-billion pound furlough scheme winds down.
The government has been paying almost nine million furloughed workers 80% of salary to a cap of £2,500 a month at a cost to the Treasury of almost £20bn. The scheme tapers down from August as state contributions reduce.
Reports over the weekend said the government was considering a cut to value added tax, citing a similar move by the then Labour government after the 2008 financial crash when VAT was reduced to 15% from 17.5% for just over a year.
Alistair Darling, Labour’s finance minister during the economic turmoil of that period, called for a similar move.
“After the Covid-19 crisis subsides, we will enter a new period of recovery. Increasing taxes will not be the answer here, even as the budget deficit and government debt rises. If anything, emergency tax cuts – slashing VAT to 15% for instance, as I did in November 2008 – should be considered to boost consumer spending,” he said.
The IoD said Sunak should consider measures such as an increase in the employment allowance and raising the threshold for employers’ national insurance contributions.
It also called for the debt burden on companies to be eased via a consultation on loan restructuring “so firms can return to growth and make repayments”.
An IoD survey found that 25% of 700 company directors said their firm would be operating at less than half capacity under social distancing rules with hiring and investment intentions for the year ahead hitting new record lows on the group’s confidence tracker.
Businesses fear a stagnation in investment as they deal with lower revenue with new safety regulation to stymie any second spike in infections
The business leaders’ group is also pressing for measures to support business investment. Recommended policies included widening the scope of tax breaks for research and development activity to support firms in making digital and other productivity-enhancing investment.
IoD director general Jonathan Geldart said Sunak’s upcoming statement “provides a perfect opportunity to pump-prime the economy for recovery”.
"The government may want to hold back some ammunition until the Autumn, but directors have to make hiring and investment plans ahead of time,” he said.
“Now is the moment for the Treasury to reduce the cost of employment so companies can retain staff. As the furlough scheme winds down, jobs are at risk, so it will be crucial to soften the blow.”