News Roundup Monday 22nd July 2019
News Roundup Monday 22nd July 2019
IFS: Tax pledges could cost billions
With Conservative leadership hopefuls Boris Johnson and Jeremy Hunt both vowing to cut taxes as part of their campaigns, Helen Miller, head of tax at the Institute for Fiscal Studies, looks at taxation in Britain. She notes that the amount of money the Government is collecting through taxes is at a historical high, while the UK is in the “middle of the pack” in regard to how much tax it raises overall compared to other countries. OECD figures show that in 2016, tax revenues accounted for 33.2% of national income in the UK, placing it below countries including Denmark (45.9%), France (45.3%), Germany (37.6%) and Spain (33.5%). IFS analysis shows that most countries which raise more tax do so by pulling in greater amounts from income tax and social security contributions. Ms Miller says IFS calculations suggest Mr Hunt and Mr Johnson’s tax plans would cost the Government “tens of billions of pounds”.
Cuts to prove taxing for Boris?
Considering what may lie ahead for Boris Johnson if he is named Prime Minister, Jeremy Warner in the Sunday Telegraph says that Mr Johnson is “a natural tax cutter” who has pledged reductions, but argues that the Conservative leadership frontrunner “shows little appetite for the smaller state that must ultimately be their corollary.” Mr Warner suggests that it is “not at all clear that Britain is capable of easing the tax burden much beyond current, elevated levels” and suggests that Mr Johnson could follow Donald Trump in funding tax cuts through debt “and hope that enhanced growth will eventually make them pay for themselves.” Separately, the Mail’s Hamish McRae says that while Mr Johnson wants to cut income taxes, “there is no leeway to do so.” He adds that “big tax cuts are for later” and the next PM should initially simplify the tax system. Elsewhere, the Times’ David Smith looks at tax pledges made by Mr Johnson and leadership rival Jeremy Hunt, saying neither have given a timeline, suggesting cuts if “not quietly forgotten, could legitimately be stretched out over many years.”
Concession can ease IHT hit
The Sunday Telegraph’s Harry Brennan warns that families risk paying too much inheritance tax if the value of a property falls between the initial valuation and the eventual sale. IHT is paid before an estate can be distributed, with the bill calculated on the property’s market value, but families can take a hit if this has fallen by the time they can sell the home. Mr Brennan notes that while IHT typically needs to be paid within six months of death, it often takes a year or more to finalise the distribution of the estate – leaving a window for a potentially substantial price shift. He advises that a little-known rule could help those who see a decline in an inherited property’s value, as it lets them reclaim the tax paid on the loss in value of property – or other assets, such as shares – within four years of the date of death.
IHT probes up 8%
Figures show that there has been an 8% increase in HMRC investigations focusing on inheritance tax since a new allowance for a family home was introduced, climbing from 5,138 in 2016/17 to 5,537 in 2018/19. Gordon Andrews, of wealth manager Quilter, says that with politicians keen to show they are cracking down on tax-dodgers, “inheritance tax is one of the departments that HMRC has been throwing its resources at.” He adds: “More often than not people are not deliberately trying to defraud HMRC and given the current complexity of the IHT system it is no surprise if things go awry.”
Letter: Fault in the theory
In a letter to the Times, Professor Steve King of Leicester University responds to a piece suggesting that raising taxes has resulted in NHS doctors working less, saying the theory the item hangs on “does not account for systemic changes in the cultural attitude to work among the top earning band.”
Rees-Mogg proposes property tax reform
Jacob Rees-Mogg has suggested that a shortage of homes stems from “distortive taxation” and the “most centralised planning system” in the world. Writing for the Sunday Telegraph, the Conservative MP calls for radical tax cuts, saying stamp duty, which he believes “penalises property transactions”, should be reduced to 2010 levels and local councils should be handed powers to reduce the levy even further. Mr Rees-Mogg has written a housing manifesto for the Institute of Economic Affairs think-tank which is due to be published tomorrow. The report, co-authored by former Treasury official Radomir Tylecote, calls for the “cutting and devolving of stamp duty” and suggests VAT on restorations should be reduced to help “boost the re-use of attractive buildings.”
PM should offer SME support
The Telegraph’s Liam Halligan believes that the next Prime Minister should seek to offer support for SMEs, “the engine room of UK innovation and growth.” He says that SMEs “are far more significant” than PLCs as they are “insulated from the short-termism that dogs so many PLCs, with their reams of fickle shareholders.” He says that the UK’s 4.8m SMEs, which account for 88% of all firms, desperately want the mechanics of business to be made as simple as possible, pointing to tax and regulation. Mr Halligan backs calls for a Single Consolidated Tax, a proposal from the Centre for Policy Studies think-tank which would see firms with turnover of less than £1m opt out of the existing tax setup, paying a tax calculated as a flat percentage of revenue. The firms would be freed from VAT, Corporation Tax, employers’ national insurance and business rates, while the t ax take would be maintained by the flat rate being set at 12.5%.
Lenders face £30m hit as retailer seeks buyer
The Telegraph reports that lenders to fashion chain Jack Wills could be left £30m out of pocket if it fails to find a buyer. Private equity owner Bluegem this month hired KPMG to find a buyer and explore options if a sale falls through. The paper says four possible suitors are circling the brand, including Ben Sherman owner Marquee Brands, but suggests HSBC stands to lose £30m it has lent the business if Jack Wills’ struggles lead to a pre-pack administration. The Times, meanwhile, says retail tycoon Philip Day has tabled an offer for the brand.
The Sunday Telegraph, Business and Money, Page: 1 The Sunday Times, Business and Money, Page: 2 The Mail on Sunday, Page: 96
British Steel sale delayed
The Mail on Sunday looks at efforts to sell British Steel and delays to the deadline for bids. The Insolvency Service appointed EY to find a buyer for the firm which collapsed into insolvency in May, with a deadline for bids initially set as June 12. This was later extended to the end of that month, and again pushed back to last week. Now, an email sent on behalf of Sam Woodward from EY’s restructuring team, and seen by the Mail, says: “I can confirm that we have not set any deadline to conclude a sale process.” He adds: “I also expect that there will still need to be a number of weeks of further due diligence and negotiations to conclude a transaction.”
The Mail on Sunday, Page: 97
Hedge fund in Newcastle talks
The Mail says hedge fund Fortress Investment Group has been holding talks with Bin Zayed Group, the Dubai-based entity interested in buying Newcastle United Football Club, over debt financing. The paper says that while talks between Bin Zayed and Newcastle owner Mike Ashley are reportedly on hold, Bin Zayed is thought to have appointed KPMG and lawyers from Pinsent Masons to work on a deal. Separately, the Observer looks at Mr Ashley’s Sports Direct, where auditor Grant Thornton wants more time to complete its audit for the financial year that ended in April.
The Mail on Sunday, Page: 99 The Observer, Page: 60
GSK drug sees promising results
The Times evaluates Glaxo Smith Kline ahead of its first-half results. It notes promising trial results of a cancer drug and cites Hilary Thomas, chief medical adviser at KPMG, who describes reports that positive signs have been seen as “brilliant news”, but adds: “However, we need to see more data to see how successful it will really be.” In other health news, Sabah Meddings in the Times looks at how prepared firms are ahead of Brexit, with reports of stockpiling and fears over shortages of medicines and supplies. Jo Pisani at PwC comments that while big firms are well placed to act, “anecdotally, speaking to individual companies, some of them are not so prepared.”
The Sunday Times, Business and Money, Page: 2, 7
Tax boost for investors
The Mail says investors can achieve more direct exposure to British businesses by investing in unquoted firms, advising that best way to invest is via an Enterprise Investment Scheme or Venture Capital Trust. These, it suggests, offer a generous tax boost as the Government is keen to get British-born businesses booming, pointing to certain capital gains tax exemptions and inheritance tax relief.
The Mail on Sunday, Page: 56
Council earns more from property than tax
Spelthorne Borough Council in Surrey, which took out more than £1bn in cheap government loans to buy office blocks, is making more money from property than from council tax, reports the Times. The paper says the local authority is believed to be the first in the country to generate more money from taxpayer-funded property investments than council tax. It notes that KPMG auditors who examined Spelthorne’s finances found “significant weaknesses” in measures to ensure value for money in a £358m deal to buy the BP corporate campus at Sunbury-on-Thames, a claim the council said it disagreed with.
Contact Paul Southward.