Tax raid will de­rail re­cov­ery, Su­nak told

Economists urge cau­tion amid grow­ing ev­i­dence of re­bound with in­creased spend­ing by con­sumers

The Daily Telegraph - Business - - Front Page - By and

Rus­sell Lynch Tim Wal­lace PROM­I­NENT economists have urged Rishi Su­nak, the Chan­cel­lor, not to de­rail Bri­tain’s re­cov­ery with an au­tumn tax raid, amid grow­ing ev­i­dence that a re­bound is gath­er­ing pace.

Ex­perts warned that Trea­sury plans for a cash grab could crush signs of life in the econ­omy, as data re­vealed a hous­ing “mini-boom”, ris­ing foot­fall and surg­ing credit card spend­ing. Bank of Eng­land sta­tis­tics showed that house­holds took on more con­sumer debt than they paid off in July for the first time since Fe­bru­ary, af­ter bars and res­tau­rants re­opened and the econ­omy emerged from deep freeze.

Mean­while, re­tail mon­i­tor Spring­board recorded a 6pc rise in foot­fall across shop­ping ar­eas last week com­pared to the pre­vi­ous seven days. Foot­fall was 26pc lower than a year ear­lier, the small­est fall since Covid hit.

But ap­pear­ing be­fore MPs on the Trea­sury se­lect com­mit­tee, economists said that a ru­moured plan for huge tax hikes in the Chan­cel­lor’s au­tumn Bud­get could crush any hopes of a “Vshaped” re­bound. Paul Johnson, the In­sti­tute of Fis­cal Stud­ies di­rec­tor, said a reck­on­ing is likely in com­ing years, af­ter the fur­lough pro­gramme and other Covid res­cue schemes sent na­tional debt surg­ing above 100pc of GDP for the first time since 1963.

How­ever, he said: “Even if we don’t get sec­ond waves we are not very clear on where the econ­omy is go­ing to go, but we are pretty clear that it is go­ing to be weak for some pe­riod.

“So I cer­tainly don’t think we should be look­ing at tax rises this year, and I would be sur­prised if we see sig­nif­i­cant tax rises next year.”

Bank of Eng­land data showed that af­ter four months of pay­ing down debts, house­holds took on an ex­tra £1.2bn of debt in July through per­sonal loans and credit card spend­ing – more than the av­er­age £1.1bn over the 18 months to Fe­bru­ary. The hous­ing mar­ket also picked up sharply, bol­stered by a tem­po­rary cut to stamp duty.

There were 66,3000 mort­gage ap­provals in the month, up by 26,000 from June, as house­holds took out a net £2.7bn in new mort­gage bor­row­ing.

An­drew Wishart of Cap­i­tal Eco­nomics said the soar­ing ap­provals “pro­vide hard ev­i­dence of the mini-boom that ap­pears to be go­ing on in the hous­ing mar­ket thanks to pent-up de­mand and the stamp duty hol­i­day”.

Trea­sury of­fi­cials are push­ing for hikes to cor­po­ra­tion and cap­i­tal gains tax. They are also eye­ing a new levy on on­line busi­nesses, cuts to pen­sion re­lief and in­creased fuel duty. Man­darins fear the record deficit of more than £300bn this year is dan­ger­ously large.

But ac­tion on any se­ri­ous scale could choke off growth, un­der­min­ing the econ­omy and ul­ti­mately dam­ag­ing the pub­lic fi­nances fur­ther. Higher taxes could lead to an ex­o­dus of top tal­ent and hold back busi­ness in­vest­ment – and if the econ­omy is smaller as a re­sult, this will lead to a lower over­all tax take. Mr Johnson said the Chan­cel­lor could even­tu­ally have to raise around 2pc of na­tional in­come, just over £44bn, from taxes if spend­ing is not re­duced.

Gemma Tet­low, chief economist at the In­sti­tute for Gov­ern­ment, said Covid may have blown a £60bn hole in the pub­lic fi­nances in the medium term, adding: “That is a huge num­ber, and try­ing to an­nounce a pack­age of tax mea­sures that would fill that would be very sig­nif­i­cant, and the pub­lic hasn’t been talked through the nec­es­sary tax rises.

“Try­ing to an­nounce spe­cific mea­sures very quickly runs the risk that you end up be­ing backed into a cor­ner of the most po­lit­i­cally fea­si­ble tax changes, which are of­ten not the most sen­si­ble eco­nom­i­cally.”

‘Even if we don’t get sec­ond waves [of the virus] we are not very clear on where the econ­omy is go­ing to go’

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