A 'special case' for government support
As we inch our way out of lockdown, the clamour for sectors to be treated as a special case will intensify. Markets that have been moribund for weeks may require reigniting and, in many cases, that will be some kind of fiscal stimulus. The lobbying has already started but who is the most deserving and what kind of reignition would have the most economic and social impact? The Government will need to tread carefully as it seeks to manage a careful exit from the pandemic with a desire to ensure that tax revenues begin flowing back into the Treasury’s coffers.
A few examples:
- The Insurance industry could claim that there is a danger that when cash is scarce people will under insure, or worse cancel policies, so why not give consumers a holiday on IPT (insurance premium tax)? For the Government it would have to weigh up the impact of homes and cars being underinsured against foregoing over £6bn a year in tax revenue. And all that for an industry which has hardly covered itself in reputational glory during the pandemic.
- The travel industry may require more intensive restructuring and possible direct government support but lobbying on an APD (Airport Passenger Duty) holiday has been under way for some time. Undoubtedly, the economic benefits of a recovering travel industry are significant from revitalised supply chains to the related tourist income. The Treasury took over £3bn a year from the duty in ‘normal times’ but would consumers regard a saving on duty as a sufficient incentive to go back into the airport?
- Many of the key players in the housing market - from housebuilders and surveyors to estate agents - are lobbying actively for a stamp duty holiday. Last year the Treasury took in over £12bn in duty so any decision to apply a holiday would leave a hole in the books. However, a stagnant market produces less income so any holiday should be designed to reignite in order to bring in improved tax receipts at a later date. Critics may also point to the fact that the sector already gets considerable support through schemes such as Help to Buy.
The housing market is an interesting case as a stamp duty holiday has precedent. The Brown' Government raised the stamp duty threshold for a short period following the financial crisis from £125k to £175k. Views are mixed on the success of that move: in London it was estimated to have helped only 12 per cent of buyers given average house prices in the capital. However, the UK housing market in all its guises with the myriad businesses its supports would be a good bet for a form of fiscal stimulus but is it the most critical sector to focus upon?
There are many other sectors who will want to be treated as a special case. The lobbyists who support industry sectors will need to build a case for why a particular industry should be a special case deserving of additional help. The reputation of the sector and the public’s support for any intervention will need to be part of the lobbyist’s armoury.
The Government’s actions over the last few weeks has kept many businesses on life support. It will need to consider how it now helps those businesses out of intensive care and back to doing what the economy needs. There are tough choices ahead…