What taxes will rise to pay for colossal COVID debts?
The coronavirus crisis has left a monster-sized hole in the public finances.
Borrowing is set to spill over into an estimated £322bn this year, according to the latest figures. That’s reportedly the highest it’s been for 300 years – bar the two World Wars.
How will it be paid for?
Ultimately, there are two main options – tax rises and spending cuts.
So, we’re arguably facing a re-run of some of the big debates after the global financial crash of 2008 that led to the so-called ‘era of austerity’.
The Institute for Fiscal Studies says tax will inevitably have to rise to pay for what appears to be the largest recession on record.
And a leaked confidential Treasury document showed recently that officials have been discussing possible plans for tax increases.
What areas of tax could rise?
Following the Summer Statement, there has been much speculation.
These areas could face rises or changes:
- National Insurance
- Income Tax
- Capital Gains Tax
- A new online sales tax
What areas are most likely to be hit?
The above mentioned Treasury memo references VAT and income tax.
Indeed, the top three from the list above seem likely to take the biggest hit, according to experts, including Chris Sanger, head of tax policy at EY, who recently told the Telegraph only these major three taxes would generate significant enough revenues to pay off the vast pandemic-related outlay.
He said: “When you have got two thirds of total revenue in income tax, national insurance and VAT those are clearly the areas that are going to have to do the heaviest lifting.”
VAT has been cut temporarily for the hospitality sector, but could become a target again.
Chief executive of the think tank Resolution Foundation, Torsten Bell, believes increased National Insurance contributions are likely, especially for self-employed people.
A new sales tax for online?
A tax on purchases made on the internet is the latest candidate. It definitely has some legs because Downing Street officials have officially announced it’s being examined as part of a business rates review.
A spokesman was quoted by Sky News saying: “We will consider the case for introducing alternative taxes …including an online sales tax.”
A new wealth tax?
Chancellor Rishi Sunak has ordered a review of Capital Gains Tax, with some commentators suggesting it might become a new ‘wealth tax’. Though the Treasury has played down the significance of the work it’s carrying out, it’s thought a rise could be on the cards.
Read more on this in our recent blog.
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