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Monday, July 06, 2020

Are we all going to get a Treasury gift token?

The Guardian reports that the Treasury are considering radical plans to give all adults £500 and children £250 in vouchers to spend in sectors of the economy worst hit by the Covid-19 crisis:

The proposals, drawn up by the Resolution Foundation thinktank, which has had recent talks with the Treasury about its ideas, are aimed at kickstarting economic recovery by triggering a highly targeted surge in spending. Under the plans the vouchers could only be spent in certain sectors, such as hospitality and “face to face” retail, as opposed to online.

The proposals are similar to successful schemes already used in China, Taiwan and Malta. In April, the Chinese city of Wuhan, where the Covid-19 outbreak is believed to have started, issued 500 million yuan (£57m) in consumption vouchers for use in restaurants, shopping malls, convenience stores, and cultural, sports and tourist venues.

Last night, ahead of a “summer update” on the state of the stricken economy by the chancellor Rishi Sunak on Wednesday, the Treasury refused to rule out introducing a similar scheme in the short or medium term.

The Resolution Foundation says its idea would be a more effective way to jump start a recovery than a temporary VAT cut, or one-off cash gifts from the state to individuals, which have also been considered in Whitehall.

Economists say cash transfers into people’s bank accounts would probably be stashed away into savings by many higher income households, while a VAT cut would do less for lower income families because they tend to spend more of their money on VAT exempt items, or reduced, or zero-rated goods.

The money could be allocated via vouchers or smartcards, and transactions could be made with the use of mobile phones. The thinktank suggests a one-year time limit for spending the money and that the scheme, which would cost the state around £30bn, could be closed down in the event of a second wave of Covid-19.

Sources involved in the discussions said the Treasury might balk at a £30bn bill and opt for smaller sums if it takes up the idea, with the possibility that it could increase the value of the vouchers later if the scheme proved effective.

This is an interesting idea and one that is worth considering. The first question that sprang into my mind when I read this article however, was: 'will the payment be taxable?'

I only ask this question because when the Welsh government announced it would be giving a £500 bonus to all health and care workers in Wales, the Treasury made it clear that they would be taking tax and national insurance from the payment. Perhaps they will wish to rethink that decision in the light of their own little giveaway.
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