Britain’s chancellor wants to “wean us off the magic money tree” after nearly a year of unprecedented spending in response to the coronavirus lockdown, a policy which saw government borrowing rise by a near-record £34 billion in December alone.
Rishi Sunak, the Chancellor of the Exchequer in the United Kingdom, has opened the taps of public spending since the government started shutting down the economy last year. The Conservative party MP is expected to want to start paying for it in the forthcoming March budget statement with new taxes.
Government borrowing from April to December — the financial year so far, and broadly the time in which the government has been borrowing for coronavirus-related reasons — rose by £271 billion, pushed by December’s borrowing of £34 billion. The Daily Telegraph reports the December figure is the third most expensive month in British history, and the most expensive of the pandemic to date.
The government budget deficit this year is expected to be the largest in peacetime ever — a feat completely wiping out the progress made through years of austerity and cutbacks to get government spending balanced after the financial crisis and years of left-wing profligacy under Labour.
Fears of tax rises — perhaps considerable ones — is mounting, and forthcoming plans have been revealed to Conservative colleagues by the Chancellor who have said, according to the Financial Times: “He wants to wean us off the magic money tree.”
The paper suggests a significant rise in corporation tax — very likely an unpopular move with businesses already struggling to survive after being forced to shutter their premises for months by the government — and other tax rises in a later budget to kick in once lockdowns have ended. The Chancellor’s hands are tied, it reports, by election promises that the Tories in power would not raise taxes on ordinary workers through payroll or consumption taxes like income and Value-Added Tax (VAT).
Other options may be at hand though, including raids on the more wealthy that many may have believed they were voting for the Conservatives — as opposed to the then-hard left would-be Labour government of Jeremy Corbyn — to avoid.
One such idea is a property levy, a whole new tax that would replace a raft of other property taxes already in place, weighted towards how the modern property market sits.
Because council tax is based on historic house values, some massive disparities exist, with residents in the town of Hartlepool paying thirty times more tax, proportional to the value of their homes, compared to central London residents, due to historic valuations and differentials in property price changes over the past three decades.
The problem for Sunak is that changing this would impact his own relatively affluent voters the hardest.
Nevertheless, Britain’s Daily Telegraph — the primary Conservative newspaper and very close to the government — has suggested talk of a property levy may be a political sleight of hand; leaking an extreme proposal to soften the public for the slightly less drastic but nevertheless unpopular policy that the government actually intends to push through. In this case, the paper claims, this would be a raid on wealth, either through a hike in Capital Gains Tax or even a wealth tax.
This could be problematic too. According to the paper, three million Britons are “paper millionaires”, and if the floor for those considered “wealthy” were dropped to assets of £500,000, one-fifth of the adult population could be liable for a huge bill. Astonishingly, because much of this wealth is actually from owned family homes and not held in cash, demanding a one-time one-per-cent wealth payment to the government could force half a million people to sell their homes just to clear the bill.
Think tank the Adam Smith Institute has suggested that rather than kicking up taxes, the government could consider cutting its own spending instead.