Coronavirus sank the economy. Output dropped by nearly 10 percent during the pandemic – the steepest fall in GDP since the Thames froze over in 1709. The government responded with £372 billion of support, nearly half of which went to business. The Confederation of British Industry described this package as a ‘lifeline’, suggesting that ‘thousands of businesses could be saved‘ by state intervention.
But for some sectors, this crisis was an opportunity. As our Tax Justice UK analysis shows, ASOS, Serco, and Rio Tinto were among six companies who alone amassed £16 billion in global excess profits during the pandemic. The profits of one company, the Scottish Mortgage Investment Trust, increased by an eye-watering 801 percent on previous years.
A look at those sectors that prospered—online retail, real estate, mining, outsourcing, finance, and pharmaceuticals—shows that this crisis accelerated a deeper structural shift in the UK economy towards rent-seeking. Large online retail companies, those that control assets, and companies that gain from public sector contracts continue to surge ahead, leaving shuttered high streets in their wake.
The Chancellor has committed to increasing the corporation tax rate on large companies to 25 percent in 2023, but only once business has benefitted from a new £25 billion tax break (the ‘super-deduction’). Taken together, these corporate tax changes will raise a net £23.5 billion in revenue for the government over this parliamentary term. That means much less new tax is coming from company profits than the £36 billion expected from the new national insurance levy on workers announced last week. Taxes on work, not capital, are paying most of the price of the pandemic.
Some might point to a new dividend tax announced alongside the national insurance increase to suggest that the balance is fair. But this only asks shareholders for £600 million. Shareholders form part of a larger group of asset-holders who benefit from unearned wealth increases, which continue to be taxed at lower rates than income from work. That imbalance drives the gap between the richest and poorest families, with the richest 10 percent netting an additional £50,000 in wealth per adult on average over the pandemic, while the poorest run down savings or sink further into debt.
These headline revenue figures suggest that companies and wealthy asset owners are not paying their fair share, even though some have generated additional profits from the shock, while many more relied on state support to remain solvent. Instead, the tax rises have disproportionately targeted work. Tax Justice UK proposes three measures to address this imbalance.
First, it’s not right that the government has asked workers to pay first, and pay more, while big companies contribute less. Those who have generated extra profits through the pandemic should pay a one-off windfall tax on this excess. If it was levied at 10 percent of excess profits, it could net up to £1.6 billion from the six companies identified in Tax Justice UK’s report alone.
Windfall taxes have been used throughout history, by governments of all stripes, to meet unexpected costs – from the ‘Excess Profits Duty’ in 1915 to support the First World War effort, through Thatcher’s ‘special budget levy’ on the UK clearing banks’ profits, to the 1997 Labour government’s windfall tax on privatised utilities. By definition, they are well suited to meeting one-off costs, such as the short-term pandemic ‘catch-up spending’ that departments will be demanding in the autumn Spending Review.
Second, the Chancellor should also bring forward his promised Corporation Tax increase to this year. That move that could raise significant sums—up to £20 billion a year—while demonstrating fairness. There are also several expensive corporate tax reliefs that bring questionable benefits to the economy.
Finally, the wealthiest individuals have been quietly ignored, continuing to pay lower rates of tax on the unearned wealth skimmed from their assets. Even the government’s own Office of Tax Simplification recognises that the imbalance between the taxation of work and wealth is unfair and creates economic distortions. Treating income from wealth in the same way as income from work could be an important source of revenue. Equalising capital gains and income tax rates could raise up to £14 billion a year.
Right now, working people are paying the largest price for the pandemic. Graduates are losing half of every extra pound earned in tax, while those working on Universal Credit hand three-quarters of their earnings over to HMRC. We need a tax system that will help us meet the costs of ‘building back better’ by taxing wealth more. It’s time companies and the richest paid their fair share.