Helen Miller

Now is not the time to raise taxes; the economy is still weak and the recovery only just starting. But that time will likely come.

Reports indicate the government is considering a temporary cut in VAT to stimulate consumer demand, possibly targeted at sectors such as tourism and restaurants. Overall the case for a temporary VAT cut now is mixed. It could provide an important fillip to consumer demand if implemented under the right conditions. Its expiration must be carefully timed so as not to choke off a nascent recovery.

"There aren’t many upsides to the current situation", write Stuart Adam and Helen Miller. "Using it as an opportunity to fix some bits of our tax system could be a silver lining."

The Chancellor has introduced workable and generous income protection schemes for most employees and self-employed people that lose work as a result of coronavirus. But there are some groups who have seen no increase in protection.

The self-employed are more exposed to the large falls in demand resulting from social distancing measures during the coronavirus pandemic and more likely to be living in poverty than employees.

Today (26 March 2020) the Chancellor announced new, very generous support for the self-employed. Those who earn the majority of their income from self-employment and who had average profits of no more than £50,000 over the last three years will be eligible for a taxable grant equal to 80% of the average profits they reported across the three years from April 2016 to April 2019, up to a cap of £2,500 per month, if they report that their income has been negatively impacted as a result of coronavirus.

Our new research shows that company owner-managers respond to changes in income taxes by adjusting how and when they take money out of their company and not by changing the amount of income they create or how much investment they do.