The coronavirus news agenda is moving into the territory of ginormous bailouts for companies and wage cuts for workers.
So it’s good to see some progressive suggestions to save the economy and people from the worst financial effects of this global crisis.
They come from Prem Sikka, professor of accounting at Sheffield and Essex universities.
Stuttering economic response
Although more help is expected to be announced today (Friday 20 March) by chancellor Rishi Sunak, Prem reckons: “The stuttering economic response of the UK government to the coronavirus crisis is disappointing.
“The centrepiece was £330bn of government-backed loans for businesses. The difficulty is that the loans, with interest, are repayable, unless the borrower goes bust.
“The repayment will squeeze corporate cash flows, just as businesses may be recovering.
Tide of bankruptcies
“The loans won’t stem the tide of bankruptcies unless people are able to buy goods and services. With the USA forecasting a possible unemployment rate of 20%, the risk of an economic depression looms.”
Here are some of the ideas that Prem is putting forward:
- Guarantee everyone an income
The UK needs to take a leaf out of the Danish government’s announcement that until 9th June it would cover 75% of employees’ salaries, if they promised not to cut staff numbers.
This is subject to a maximum of 23,000 Danish kroners (£2,890) per month. The employer would pay the remaining 25%.
2. Utility bills
The government should enact emergency legislation to freeze, reduce or waive all water, gas and electricity charges for a fixed period. This would help businesses and individuals to survive. Similar policies have been implemented in Western Australia.
3. No evictions
Millions of people live in council and private rented accommodation and face the danger of eviction. Rents need to be frozen for 12 months and legislation must make it unlawful to evict tenants falling into arrears.
4. Defer taxes
HMRC should defer the collection of PAYE, VAT, NIC and other business taxes for one year. Such a policy has been implemented in Sweden and would boost business cash flows and aid survival. The amounts would still be payable, but at a later date.
5. Reduce taxes
Tax liabilities on business profits could be decreased by accelerating capital allowances, a form of legal depreciation of eligible assets. The current rules are complex, but in general the ‘normal’ allowance is writing down allowance of 18% of the cost of eligible assets, or a special pool writing down allowance of 6%.
The government should allow businesses to charge 100% of the cost of assets, or the whole balance of any unused capital allowances, against taxable profits.
6. Change rules of relief for tax losses
The rules of relief of tax losses should be changed. The general rule is that losses can be can be carried forward and offset against future profits. Under certain circumstances, businesses are also permitted to offset losses against taxable profits for the preceding 12 month period.
Rules should be changed so that companies can offset losses against the preceding five years’ profits. So if a business paid tax during the previous five years, it would get a rebate and that could aid its survival. This measure could apply to all businesses or selectively to specified sectors.
7. Extend business rate freeze to nurseries and gyms
The government has announced that “shop, pub, theatre, music venue, restaurant – and any other business in the retail, hospitality or leisure sector – will pay no business rates whatsoever for 12 months”. This is welcome but there appear to be omissions, such as nurseries. gyms and childcare centres. This policy needs to be revisited.
8. Compensate local authorities for loss of business rates
Local authority funding needs to be boosted to compensate them for the loss of business rates revenues. They also need additional funding to provide public services, including the deep-cleaning of all public spaces.
Great ideas Prem Keep them coming…
