The coronavirus pandemic has wreaked havoc in the UK in 2020 and in more ways than one. In addition to the obvious health crisis, it has also had a severe economic impact which has now led the UK to fall into a recession for the first time in 11 years.
In fact, in just a few months the UK has lost nearly 18 years worth of economic growth and it is predicted that the impact from COVID-19 will be felt for a long time to come. While COVID-19 has had an enormous impact, it is important to realize that there were already problems before with the UK’s GDP failing to grow in the final quarter of 2019 and average real wages remaining below their 2008 level.
Tax Rises and Public Spending Cuts Expected
The recession is the worst of any G7 member state (along with the highest excess death rate of any European country), which has meant that the government has had to prop up the economy throughout the pandemic with the national debt exceeding 100% of GDP for the first time since 1963 and it is expected that Chancellor Rishi Sunak will announce tax rises and cutting public spending as a way to right the ship.
Why Thinking Outside the Box Could Work
It is clear that action needs to be taken to revive the economy, but it may not be the best solution to lean on tax as a tool to bring stability back. This is a point recently outlined by RSM’s International Tax Services Leader Rob Mander, who believes that thinking outside the box will be key to revitalizing not only the UK but the global economy. Mander states that countries cannot tax their way back to prosperity despite this being the most common path following the 2008 global recession.
Mander explains that the world is a different place to previous financial crises and the extreme volume of expenditure is not realistically recoverable from higher taxation. Instead, multiparty solutions have been a suggestion which involves those in intersecting sectors to work together to find solutions. Working from home is an example of how multiparty solutions work with different groups coming together to find solutions that works for everyone – remote work protects public health, relieves pressure on public transport and can benefit businesses and employees.
Balancing investment and spending is another potential solution, particularly with SMEs being hard hit and such a key part of the UK economy and often with key concepts and technologies. Mander also believes that now is the perfect time for a new mixture of taxes that better reflect today’s society as opposed to the old ideas used to work with new business models.
The world has been changed and it is important for governments to find new, creative ways to revive the economy for future success.