As nations of the West at least look to emerge and rebuild from the economic and social effects of a global pandemic, there is a sense that the world as we knew it has changed.
In the UK there are several other factors which have combined to create this impression. The pandemic came hard upon the dislocation of Brexit, and over the past year a series of weather events across the globe – as well as the upcoming COP26 being hosted from Glasgow - have driven home the impact of climate change. These things have contributed to a sense that the ‘new normal’ should be notably different to ‘business as usual’. What, then, should it look like?
The effects of these seismic events mean that the Government faces some big choices ahead, all will be significant and costly. It’s likely that many will impact the ABI’s members and their customers, from decisions on funding for social care to transitioning the economy to Net Zero – the latter already firmly top of the agenda in the City and our industry.
Tax will have a role to play here. We can see this already through the politically charged debate around potential plans to fund social care by a rise in National Insurance. The OECD proposals for the taxation of the digital economy are in prospect, with final negotiations in sight and implementation a real prospect in the next few years. These measures are intended to raise substantial sums, reduce international inequalities and address the issue of Base Erosion and Profit Shifting, so often a complaint of the average taxpayer against the largest corporations. The pressure for increased ‘green taxation’ is also likely to be felt as we approach COP26 and meaningful global commitments on carbon reduction.
The Spending Review will give a clearer indication of the Chancellor’s thinking, and of how the tussle between the Treasury and Number 10 – fiscal restraint against instinctive largesse - is playing out. But despite the economy’s growth, the debts incurred in the last 18 months mean unpalatable measures must be considered, and it is likely that higher taxes for business will seem more attractive than higher taxes for families. So the industry faces some uncertainties – as does the Treasury and HMRC.
There are ways in which this uncertainty can be mitigated: the ABI membership has for some time made it clear that a ‘tax roadmap’ from the government, setting out the general direction of travel for tax administration and rates, would go some way to provide more confidence for UK and overseas investment. Such a roadmap was set out by the coalition government in 2010. It is appreciated that events of significance may cause some divergence from the route, but the broad outline of the road ahead would be clear. There are signs that this is being recognised by HMT and HMRC, at least for specific areas.
One such area of keen interest to the tax team is the Industry Working Group (IWG) set up jointly by HM Treasury and HMRC to consider the future VAT treatment of financial services. This is a significant – some might suggest radical – exercise to revisit the fundamental assumptions about the indirect tax liability of financial services, which have not been questioned since the UK joined the then EEC in 1973. Indeed, since VAT exemptions for EU member states were set out in EU directives, they could not be. With EU constraints receding, it is welcome that HMT and HMRC have seized the opportunity to contemplate something of a blank page – equally welcome is the recognition that a change to the VAT treatment of insurance means a change in the application of Insurance Premium Tax, which falls within the scope of the review.
But most welcome of all is the decision to engage openly and early with the financial services industry, to ask what its members want and what the review should look like. If this is a taste of the new world, we could do with more of it. I am privileged to be the Deputy Chair of the IWG, and I shall be discussing the review with Rachel Stirrat of HM Treasury, its co-chair, at the ABI Insurance Tax Convention.
I urge you to join us at the Hilton Metropole in Brighton on 20-21 September to enjoy the industry networking event of the year (indeed, of the decade so far) for a packed programme of technical sessions and keynote speeches from people like Paul Johnson of the IFS. Limited tickets for this year’s event remain and you can book here. Many of the sessions look forward to a year of significant change and disruption – this time, hopefully in the cause of better times ahead.