finance

Pimms may bubble post-lockdown, but the future for many is less cheery | Larry Elliott


Whisper it softly, but things are starting to look up for the UK economy. Evidence is starting to accumulate that the easing of lockdown restrictions is allowing activity to return to something like normal.

Naturally enough, there are plenty of caveats. A new and more virulent strain of the virus could sweep across the country leading to the shutters going down again on businesses that have only just opened.

The Bank of England’s latest data on corporate default rates is also a bit sobering. While big companies are holding up well, the number of small firms defaulting rose in the first three months of 2021 and is expected to rise again in the second quarter. More medium-sized companies expect to face difficulties as well.

On the other hand, the real time news from the Office for National Statistics is modestly encouraging. Restaurant bookings are up, and online job adverts are at their highest since before the country first went into lockdown. There was a marked increase in opportunities in catering and hospitality, a particularly hard-hit sector.

On 12 April, the day non-essential retail stores were allowed to reopen, the volume of motor vehicle traffic on the roads was 91% of its pre-pandemic level: a rise of seven percentage points in a fortnight. Traffic camera activity in London is around the levels it was in early 2020.

Meanwhile, the online supermarket Ocado has reported a surge in interest for Pimms, Aperol, burgers and nibbles as households seek to enjoy their new freedom to mix whatever the weather.

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Clearly, there’s still a long way to go. In February, the level of activity was almost 8% lower than it was pre-pandemic, a bigger shortfall than there was after the financial crisis of 2008-09.

One worrying aspect of the ONS snapshot of the economy is that a quarter of firms temporarily forced to cease trading during the current lockdown have little or no confidence that they will make it through the next three months. For many businesses any spring surge in demand cannot come a moment too soon. For some it is already too late.

A pain-free wealth tax?

Wealth taxes are fashionable and it’s not hard to see why. Governments have spent heavily this past year and have run up big budget deficits. Finance ministers are looking for the politically pain-free methods of raising revenue. Stanley Baldwin, commenting on the new intake of MPs in 1918 said they were a “lot of hard faced men who look like they have done very well out of the war” and it is their modern equivalent who are being earmarked as potential sources of revenue.

There are plenty of ideas floating around for how a wealth tax would work, the latest arriving in a paper by Emmanuel Saez and Gabriel Zucman of University of California, Berkeley presented to the Royal Economic Society annual conference.

Saez and Zucman say all publicly listed companies in G20 countries should pay an annual wealth tax equivalent to 0.2% of their stock’s valuation. G20 stock market capitalisation is currently $90tn (£65tn) – so the tax would raise $180bn a year.

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Pre-empting criticism that such a tax would drain firms of cash or affect investment, Saez and Zucman suggest companies could pay the levy by issuing new stock. This, of course, might depress share prices a bit, leading to a lower tax take, but for policy makers the proposal’s benefits outweigh its drawbacks.

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Unlike some of the other ideas for corporate taxation, the Saez and Zucman plan is simple to understand and it would help tackle two of the most obvious effects of the pandemic: the increasing dominance of a small number of giant companies and rising inequality.

As with a Tobin or Robin Hood tax on foreign exchange transactions, the real obstacle to a new corporate wealth tax is political rather than technical. Joe Biden is already proposing to raise corporation tax in the US by seven percentage points so he might be wary of an international levy that would target Amazon, Google and Facebook.

That said, rich countries are under pressure to find ways of helping poor countries with vaccine programmes and their transition to a zero carbon future. And $180bn is a tidy sum.



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