The burden on the British taxpayer has hit levels not seen in 70 years, yet the Treasury secretary is considering tax hikes to make up for the massive budget shortfalls incurred during the Chinese coronavirus crisis and the ensuing lockdowns.
Chancellor of the Exchequer Rishi Sunak is reportedly mulling tax hikes in response to soaring government debt, which have already reached 100 per cent of GDP. The new debt, largely incurred through furlough payments to workers forced to stay at home, could rise above £400 billion this year.
The Chancellor is said to be considering increasing the capital gains tax from 20 per cent to up to 45 per cent, an increase on fuel duties, and raising corporation tax from 19 to 24 per cent — a raid on individuals and businesses to pay for the government’s coronavirus lockdown spending spree.
If Sunak were to introduce the tax hikes, the notionally Conservative government under Prime Minister Boris Johnson would usher in a level of taxation unseen in the UK since the post World War II era under Clement Atlee’s Labour government, according to the Taxpayers’ Alliance, The Telegraph reported.
The chief executive of the low-tax campaign group, John O’Connell, warned that a capital gains tax would adversely affect the prospects of an economic recovery.
“Capital gains tax is a double tax that harms investment, which is precisely what we should avoid if we want to kick-start growth and help create jobs,” he said.
Adding: “The sustained tax burden is now the highest it’s been since the country was recovering from the Second World War 70 years ago, and any tax rises in the next Budget will put that figure even higher.
“In these difficult times, the Chancellor should give hard-pressed families and businesses a respite from taxes, offer a rescue to struggling sectors and try to revive the economy.”
While the 2019 Conservative Party manifesto pledged not to increase VAT, inheritance, and National Insurance taxes, there was no pledge to keep corporation or capital gains taxes down.
Aside from increasing taxes, the Mr Sunak is also reportedly looking to cut spending in the government’s March budget, as opposed to the infrastructure spending push favoured by Prime Minister Boris Johnson.
From April to December of last year, government borrowing rose by some £271 billion, with £34 billion borrowed in December, alone, the third most for any month in British history and the most expensive since the start of the pandemic.
Despite the rising debt, borrowing money will remain cheap for the generally robust UK economy, however, reflecting the view of global investors that the UK government is a low-risk debt to lenders. The S&P credit rating agency forecast that the UK will pay less on its debt than it is currently, despite the rising costs of the economic shutdown.
A sovereign debt specialist for the agency, Frank Gill, said: “Our calculation is that the average rate that the UK is paying on its debt today is around 1.8 per cent. That compares to a little over 3 per cent in 2014, so the cost of funding really is very low and we expect it to remain well below the UK’s growth performance over the next few years.”
“The likelihood is that they’ll probably pay even less on their debt in three years’ time than they do today,” he added.
Last week, the Office for National Statistics (ONS) reported that unemployment in the UK hit five per cent for the first time in over four years, with more than 200,000 people losing their jobs in the three months up to November.
In total, some 828,000 fewer people were employed per company payrolls as of December compared to February 2020, the month before lockdown measures were introduced.
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