It is clear from Rishi Sunak’s recent statements that he wants to defer any talk of tax rises until at least next year. The chancellor is minded to ignore the pressure from many of his own backbenchers to deal with the government’s spending deficit while the health crisis is still in full swing.
And he can feel comfortable that his stance has broad support following assessments by the International Monetary Fund and the Organisation for Economic Co-operation and Development, both of which have backed unrestrained Covid-19 spending.
A look across the channel will also reinforce his view that kicking the tax can a few yards down the road is understandable and reasonable. France, Germany and most other EU countries have promised to keep in place huge government subsidies linked to the pandemic until a vaccine means life can go back to something like normal.
Yet on 25 November the chancellor will deliver a one-year spending review overshadowed by the biggest rise in government debt since the second world war.
Before the latest lockdown, the Institute for Fiscal Studies warned Sunak that unless some decisive action was taken, the Conservative government would head into the next election with a black hole in the public finances almost three times bigger than when Boris Johnson came to power.
A slow recovery from the pandemic, which will dampen tax receipts and leave the Treasury paying higher unemployment bills, means borrowing is likely to be about £100bn higher by the time of the election in 2024 than had been forecast before the pandemic struck.
More immediately, the Office for Budget Responsibility, the Treasury’s independent forecaster, said the government’s annual spending deficit was on course to hit around £400bn or 20% of GDP, taking the overall stock of debt well above £2 trillion.
The OBR is likely to reaffirm this gloomy outlook when it provides an assessment to coincide with the spending review next week.
To prevent a sense of panic about the nation’s finances – as much in the nation at large as among Tory backbenchers – Sunak should signal that when the time comes, he is not going to repeat the mistakes made by his predecessors, the austerians George Osborne and Philip Hammond.
He should announce that cuts to welfare will be avoided while he looks imaginatively at ways to raise money through tax increases.
Last week, the Office for Tax Simplification recommended equalising capital gains tax rates with those that apply to income tax.
The last Labour government was one of the worst offenders when it came to cutting the tax on capital gains, explaining that it encouraged entrepreneurs. Mostly it was a tax break exploited by the very rich and only succeeded in protecting their relatively safe investments.
Economists at Deutsche Bank proposed making employees pay a 5% tax for each day they choose to work remotely as a way to rebuild the public finances. They calculated that such a tax could raise £7bn in the UK.
The Social Market Foundation thinktank produced a recent report on property gains, which have increasingly become the focus of middle- and high-income households as the financial basis of their retirement, if not their day-to-day income. Adding up all the likely gains from the UK’s £5tn of property assets over the next 25 years, the thinktank calculated that a 10% tax would raise £421bn. This would be payable on the taxpayer’s main residence, which at the moment can be sold tax-free.
Of course such a plan would meet huge resistance, but there are few rival ideas from left or right that can transform the public finances without also attacking the already low incomes of the average worker.
And even though the tax rises should not be applied until a recovery is at full throttle, the thinking needs to begin. And the over-reliance of UK households on property wealth is a good place to start.
The kitchen table could be the office for some time to come
The permanence or not of working from home continues to divide bosses, if not their staff. Last week Stephen Bird, the new head of investment firm Standard Life Aberdeen (SLA), said: “You cannot change the world from home. Collaboration, innovation, transformation of business models requires your best brains in real time, in a common space.”
Most of the asset manager’s 4,500 staff are working remotely, but Bird thinks offices are important for productivity, and for younger employees to learn.
This sets SLA apart from rival fund manager Schroders, which has said its employees can carry on working from home even when the pandemic is over. Eight months after the spring lockdown, millions are still working remotely, and bosses are weighing up the pros and cons of making the shift permanent.
The Office for National Statistics (ONS) says more than half (58%) of UK workers were travelling to their workplace at the beginning of this month. Yet its data also shows that the issue of whether home working improves productivity is still unproven. A majority of firms (57%) felt productivity had remained the same, while 19% noted a decrease and 14% an increase.
Amid optimism over a Covid vaccine, leaders are still wondering what the lasting effect of remote working will be on their businesses, culture, and office buildings. Land Securities, one of Britain’s biggest property firms, said last week that the death of the office was overstated and demand for space had been “robust”. But Bird’s intervention underlines that office culture as we knew it is under serious threat.
Disney+ subscribers add to investors’ confidence
Disney has built the world’s biggest entertainment empire on the back of blockbuster films, theme parks and pay-TV sport. And now streaming is a pillar of the business too.
Last week, the company revealed that its Disney+ service had attracted 73.7 million subscribers less than a year after launch. It took streaming pioneer Netflix nine years to reach the same number.
However, the majority of the latest growth has come from adding users of Star, the streaming service Disney acquired as part of the takeover of 21st Century Fox. Operating in India and Indonesia, it now accounts for a quarter of Disney+ subscribers. As a consequence, across Disney+ average revenue per subscriber is $4.52, whereas at Netflix it is closer to $12. And millions of Disney+ customers who got their first year free through partner deals are about to have to choose to pay or cancel.
Another question is content. Disney+ has a thinner library than its rivals and is heavily reliant on its one bona fide original hit to date, Star Wars TV spin-off The Mandalorian. Analysts believe the experiment of shifting the big-budget film Mulan from a cinema release to Disney+, charging subscribers an extra $30, has not paid off on the scale hoped. Nevertheless, Disney+ is on track to become profitable by 2024. And the company’s new streaming empire is multi-pronged: US-only platform Hulu, which is home to more adult fare such as The Handmaid’s Tale and is expanding internationally under the Star brand, increased subscribers by a quarter year-on-year to 37 million. And sports service ESPN+ has tripled numbers to 10 million.
Disney’s value has remained steady at about $230bn over the past year as the markets hold on the hope that a vaccine will fix the theme-park business. However, the share price’s resilience also reveals investors have faith in the strategy of reinventing Disney’s traditional TV and film business to succeed in the streaming age.