UK faces higher taxes in ‘decades of reckoning’, economists warn
‘We must return our public finances to a sustainable position over the long run’
BRITAIN faces a “reckoning” of higher taxes to pay for coronavirus bailouts, economists have warned, predicting that it could take decades for the country’s finances to recover.
Paul Johnson, director of the Institute for Fiscal Studies (IFS), said the UK faces its “deepest recession in history” and that it is inevitable tax will have to be increased. Taxes may have to rise by as much as £40billion a year to safely pay off debts built up during the crisis. This would mean the equivalent of each full-time worker paying about £100 more a month, if the revenue was to be raised through income tax, modelling of HMRC data suggested.
Rishi Sunak left little doubt that tax rises are coming as he said yesterday: “We must return our public finances to a sustainable position over the long run.”
The Chancellor has spent more than £188billion of public money on measures to keep the economy afloat during lockdown, with more expected in his autumn Budget.
Yesterday, Boots announced plans to cut 4,000 jobs because of the effects of the coronavirus. Meanwhile, branch closures by John Lewis and Burger King put nearly 3,000 jobs at risk.
Young people are likely to be disproportionately affected by the job cuts.
Three thousand British workers have also applied to take voluntary redundancy at Rolls-royce.
In May, the company announced that it would be seeking 9,000 job cuts worldwide. It also emerged yesterday that HM Revenue & Customs’ most senior civil servant did not sign off the retention bonus scheme, which pays employers £1,000 for every furloughed worker they bring back, because of concerns over “value for money”. It could cost up to £9.4 billion, the Treasury says.
Jim Harra, HMRC’S permanent secretary, said the cost of the policy and the number of jobs protected by it were “highly uncertain”.
Mr Harra also cited similar value for money concerns over the “Eat Out to Help Out” voucher scheme.
Mr Sunak then issued a ministerial direction to go ahead with both schemes.
The Chancellor has admitted that some of the £1,000 bonuses will be
“deadweight” because they will go to companies who would have brought staff back anyway.
In May, a Treasury document leaked to The Daily Telegraph showed that Government officials were discussing tax rises, including VAT and income tax, and public sector pay freezes as ways to claw back the billions spent during the coronavirus
crisis. Speaking at the IFS’S minibudget assessment yesterday, Mr Johnson said: “The time to pay for all this will come. But not this year and not next.”
The IFS director added: “Let’s hold in the back of our minds that a reckoning, in the form of higher taxes, will come eventually.”
The Autumn Budget is likely to see “more targeted tax cuts”, Mr Johnson said, and possibly more money for emergency support schemes.
He added: “Affordability can wait for now.”
Mr Sunak focused solely on stimulating an economic recovery in his minibudget on Wednesday.
Even expected measures to tighten spending, such as a move to temporarily scrap the pensions triple-lock, were shelved.
The Chancellor’s first priority has been to stimulate economic growth, which has been significantly dampened by lockdown measures closing businesses, and stave off the unemployment crisis.
In March, the Government forecast a deficit of about £50-60billion for this year.
The IFS said
£350 billion.
Wednesday’s measures added another £30billion to Government borrowing.
Mr Johnson said: “In normal times, even in a normal recession, we would have been taken aback by the scale of measures announced outside of a Budget.
“Up to £30billion of measures plus £33billion of public service spending not previously accounted for.
“But, of course, this is no normal recession. It’s the deepest in history.”
Mr Sunak admitted yesterday that he was “anxious” about the state of the UK’S economy which is “entering into a very significant recession” because of the crisis. The Chancellor told Sky News: “Unless activity returns to normal, those jobs are at risk of going, which is why we acted in the way that we did.”
Earlier this week, Boris Johnson ruled out raising income tax, VAT or National Insurance contributions – keeping him in line with the Conservative Party’s election manifesto “tax lock” pledge.
Asked if future tax rises could involve some stealth taxes instead, the Prime Minister’s spokesman said yesterday: “Taxes and fiscal policies is never something I’m in a position to discuss.”
Carl Emmerson, deputy director of the IFS, said yesterday that “quite a chunky tax rise” equivalent to about 1.5 per cent will be required – or between £35 billion and £40 billion every year – once the pandemic is over and the country begins to adjust to a “new normal”.
Mr Emmerson added that managing the higher debt levels as a result of the crisis will be a task “for not just the current Chancellor, but also many of his successors”.
“It’s going to take decades before we manage that debt down to the levels we were used to pre this crisis,” he said.