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Why the idea of a windfall tax doesn’t add up

A new poll conducted by YouGov found that more than half of the population would support a ‘windfall tax’ on companies which have done well during the coronavirus pandemic. But to others, that seems like a penalty for simply being good at business.

The government has done a lot to support both individuals and businesses during the lockdown: paying wages, reducing rates, offering loans and more. The total cost of this support isn’t yet known but those in the know are estimating that it’ll add up to more than £300bn given out.

That’s a whole lot of money to recoup by anyone’s measure. One option is to cut public funding, and that’s rarely a popular option in opinion polls. The other option is to tax more, but again, that’s never very popular – unless it’s somebody else that’s paying the tax. That’s plenty more palatable.

And that’s what’s likely to have happened here. Everybody thinks they already pay enough tax themselves, but they’re more than happy for somebody else to pay more. They’ll vote for that option every time. And that’s how you get more than half of the population to think that a windfall tax on successful businesses is a good idea. But is it?

A windfall tax would disproportionately target businesses that have been successful during the coronavirus pandemic. The main examples cited are food retailers and online retailers. They’ve done bumper trade while we’ve all been stuck at home, so they can pick up the tab for fixing the country, so the thinking goes.

But that doesn’t seem fair. More sales don’t automatically lead to more profit, especially during tough times such as these. Retailers have had to change their everyday practices, employ extra delivery drivers, upgrade their shopfronts and logistics software. Costs have gone up, too!

In addition, it needs to be taken into account that businesses aren’t successful merely because they’re in the right industry. You also need to have the right products, the right marketing, and the right access to your market. Primark will be a case study forever more because it chose for years not to open an ecommerce store and therefore made no sales at all when the high street was shut down. In this scenario, they’d be facing a smaller tax bill than, say, Next or River Island or another competitor, which was able to continue trading through its ecommerce channel.

Trading online isn’t even an earth-shattering idea any more. It’s pretty common practice. So it doesn’t make sense to penalise those that use it for the benefit of those that chose not to.

The argument is that those who are more successful should pay more into the public purse. But that’s already how tax works: more profit equals more tax paid. A windfall tax charges them once again, purely for succeeding through difficult times.

That sends a very bad message. Companies that find clever and innovative ways to do business even when the odds are stacked against them should be held up as shining examples for everybody else to learn from.

If you penalise the innovators, then they won’t bother in future, and they won’t be there the next time that you need them. And in that situation, there are no winners.

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