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Tax perk in danger

After all, the logic of allowing companies to deduct their interest payments against taxable profits was tenuous – and had been questioned – even when the public sector’s balance sheet was comparatively sound. Now that it is being wrecked, there is more reason to wonder why companies should have this perk; especially as removing it might perform a socially-useful function, albeit one that would favour some companies and penalise others.

That there is a hole to be filled is not in question. Since 1900, the biggest year-on-year drop in the UK’s output was 9.7 per cent in 1921; a year, incidentally, when the effects of a far more serious pandemic lingered. That drop will be nothing compared with what awaits us in 2020, according to the best guess from the UK’s Office for Budget Responsibility; the spending watchdog pencils in a 12.8 per cent fall. As a result, public sector receipts could drop by 15 per cent even while public sector spending rises by the same proportion. The effect is a £218bn deterioration in public sector finances.

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