Windfall tax on accountants
With the press murmuring about a windfall tax, Philip Fisher wonders how far it might go alongside potential ramifications.
The cynics amongst us – and accountants are trained to be cynical – may well have viewed the media suggestions of a windfall tax for those that have done well out of the pandemic with a wry smile.
Testing the water
It has become increasingly apparent for the last decade (probably much longer) that when press outlets friendly to the government introduce speculative stories ahead of budgets, these are usually fed or leaked by those in positions of power.
Therefore, when the weekend papers put forward the proposition that the likes of Amazon, possibly supermarkets and other online businesses should be subject to a new windfall tax, this felt like a plea from the Chancellor of the Exchequer for his pals (and even his predecessor at the Evening Standard, although not for much longer) to test out the idea with the public in order to see whether it would find favour.
The United Kingdom has benefited from the use of windfall taxes in the past. In a relatively typical previous example, such taxes targeted energy companies after rises in the price of oil. Predictably, nobody apart from those owning shares in the afflicted companies shed any tears and therefore this is regarded as a relatively painless way to raise revenues.
However, there has to be the big question as to whether this is the right moment to introduce a scheme that could easily backfire. The country is currently in a parlous economic position with most businesses closed down, furlough about to end and unemployment presumably going to soar.
In addition, supermarket and distribution staff have become key workers, doing their best to keep the country afloat in very difficult times. Frankly, if their businesses are making good profits, that isn’t such a bad thing.
It might be more feasible and popular in connection with online suppliers of luxury products. But you just know that if the major players with very light footprints in the United Kingdom are theoretically penalised, they will find a way of worming their way out, leaving those with less firepower to pay the bill.
The arguments against raising taxes more generally at the moment also seemed to apply. If employers face higher tax bills, they may just cut even more staff. The idea of an economic recovery might seem a long way off at the moment but that too could be impacted negatively if the businesses that are managing to thrive in difficult times are pegged back.
This could be compounded by the possibility that businesses and businessmen might flee the United Kingdom, either to avoid paying the tax or as part of a wider strategy connected to our departure from the European Union and the connected costs. In addition, the amount that could be raised may be substantial, possibly several billion pounds, but in the overall scheme of things this is a drop in a very large ocean.
If we assume for the moment that Rishi Sunak does choose to implement a windfall tax to attack businesses that have held up relatively well over the last year, one wonders whether he might think about targeting the professions, maybe even his old colleagues in the banking industry.
The timing may have been inopportune but the fifth largest firm in the UK has recently been in the spotlight for its initial decision to claim and then retain furlough payments, reluctantly refunding the cash when challenged. As AccountingWEB has recently identified, many other accountants have taken a similar line without paying them back.
Published figures show that while profitability in the profession has been lower as a result of the pandemic.
Even so, partners in the top five firms are still averaging “partner pay” in excess of £500,000 with those at Deloitte suffering the largest cut but still topping the table at a healthy £731,000 each. This means that large numbers of partners at elite practices are still exceeding £1 million.
That is an awful lot compared to the average key worker or, for that matter, an MP or even a Prime Minister who has been heard to whine about how difficult it is to live on his meagre pay.
Knowing the power of schadenfreude, there may well be large numbers of accountants earning far less who wouldn’t be sorry to see this outcome. The problem for them might be where the cut-off applies. Most of us would love to see the rich taken down a peg or two but not if we fall into that rich category.
It’s not going to happen (now)
In reality, imposing a windfall tax at this delicate moment would seem like a bad idea for all of the reasons above. However, in the longer term, the government is going to need to do something to recover the money ploughed into the pandemic and despite ministers’ natural instincts, this is going to have to hit the rich as well as the poor.