Sunak stands by his summer statement
Chancellor Rishi Sunak this week defended controversial support initiatives in the face of critical questions from members of the House of Commons Treasury select committee.
HMRC chief executive Jim Harra publicly questioned the value of the £1,000 Job Retention Bonus and eat out to help out £10 voucher scheme, prompting a pair of ministerial directives from Sunak to start implementing them in spite of the tax department’s formal reservations.
According to the Chancellor, however, the same risks were identified with most of his other coronavirus support initiatives. “Bounce Back Loans, the Coronavirus Job Retention Scheme, Future Fund, business rates and grants all required direction,” he replied to Labour committee member Angela Eagle during a virtual hearing on Wednesday.
“To put in context, most people think those things were sensible and welcome and good things. The [HMRC] letter did acknowledge there was a sound policy rationale, but given the speed of movement, it was difficult to model the impact, which I can understand. But that is, unfortunately, the environment we’re operating in.”
Eagle, a Labour MP, posed the most challenging questions to the Chancellor, for example contrasting his eating out vouchers with the needs of other sectors such as aerospace, which represented 120,000 high-skill, export-rich jobs under threat from the continuing lockdown.
“You’re the policymaker, I’m the questioner,” Eagle said when Sunak asked which sectors she would favour. “You have to think whether you need to focus your assistance more effectively… There’s no sectoral strategic approach.”
MPs from other parties also put Sunak through the wringer. Tory Felicity Buchan questioned the Chancellor on the practicalities of the VAT rate cut for hospitality and the temporary nature of the stamp duty threshold increase.
“I welcome the stamp duty cut, but have you missed an opportunity to do a root and branch review?” Buchan asked. “If you look at the top end of the market, it’s quite punitive and I would argue is a deterrent to transactions, especially in my constituency of Kensington.”
Sunak responded: “We were not trying to reform the tax system, but trying to inject life into a market that was off the pace.”
On the likelihood of the VAT rate cut reaching consumers, Sunak responded that around 80% of the generalised VAT cut during the financial crisis in 2008-9 was passed on to consumers.
“I can’t sit here and set price for every business… it’s up to individual companies,” he said.
“Will benefits flow to business or consumers? All of that is helpful to safeguard jobs. There will be different ways for that benefit to flow though, and it will make it more likely it will save more jobs… Given the situation we’re in, people are not used to going out. The time to act is now.”
Capital gains tax review
Time and again, the Chancellor batted away questions from MPs on whether he planned to raise taxes. There is also the issue of his March comment that he wanted to equalise the tax treatment for the employed and self-employed.
While happy to listen to “broader questions” about tax, “That’s the sort of thing we deal with at Budgets,” the Chancellor said at one point.
Nevertheless, the Chancellor and Treasury director of strategy, planning and budget Dan York-Smith confirmed that wheels are already turning on some initiatives for the autumn Budget. The terms of reference for the business rates review were published in March and the Treasury was due to publish a call for evidence shortly, said York-Smith.
The Chancellor wrote to the Office of Tax Simplification this week to ask the body to investigate options for capital gains tax reform – potentially a quick way for the Chancellor to come up with much-needed cash for the Exchequer.
But Sunak told the committee the CGT review was a “reasonably business as usual practice for the Treasury to ask people if certain activities are up to scratch. The OTS has looked at all sorts of things before. I think CGT is the only one they haven’t looked at.”
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