‘Decades of tax rises’ warning
‘Task will be for Sunak and many Chancellors yet to come’
BRITAIN COULD face decades of tax rises to repair its battered public finances in the wake of the coronavirus crisis, economists have warned.
The Institute for Fiscal Studies (IFS) said managing the elevated debt from the pandemic would be a task “for not just the current Chancellor but also many of his successors”.
And the think tank questioned the impact of two of Rishi Sunak’s most eye-catching announcements – the “eat out to help out” meal-discount scheme and the VAT cut.
At a presentation of its findings on the Chancellor’s statement, the IFS’s director, Paul Johnson, said a “reckoning in the form of higher taxes” would have to come eventually.
Deputy director Carl Emmerson warned that the economy would probably not be as big as it would have been, had the crisis not hit.
“If that’s the case, and it’s very likely to be the case, revenues will still be depressed and if we want to try to bring the deficit back to where it would have been we will need to do some spending cuts, or given a decade of austerity, perhaps more likely some tax rises,” he said.
“It’s going to take decades before we manage that debt down to the levels we were used to pre this crisis.”
The IFS said the temporary stamp duty holiday announced by Mr Sunak could push up house prices and deputy director Helen Miller questioned whether the meal-discount scheme and VAT cut were driven by a problem with demand or supply, with
businesses unable to accommodate customers due to social-distancing constraints.
She said many businesses would not pass on the VAT cut to customers so “the firms that benefit most would be those who have the highest sales, who are operating closest to normal”.
She also questioned why the “eat out to help out” scheme did not include takeaways.
Meanwhile, HM Revenue and Customs chief executive Jim Harra raised concerns about the value for money of the Job Retention Bonus scheme, which gives £1,000 to firms for each furloughed employee they bring back to work.
In a letter to the Chancellor, he requested a ministerial direction – a formal order to go ahead with a scheme, despite the concerns.
Mr Harra said while there was a “sound policy rationale” for the scheme, “the advice that we have received highlights uncertainty around the value for money of this proposal”.
Mr Sunak earlier said there would be a “dead weight” cost to the scheme, as some employers who intend to retain workers anyway would benefit. He told BBC Radio 4’s Today programme that “without question” there had been “dead weight in all the interventions we have put in place”.
Labour leader Sir Keir Starmer said the Government could not afford the “dead weight”.
He told reporters during a visit to Harlow that “it should have been targeted in the areas that most need it, not across the piece”.
A Treasury spokesman later said the Government was confident the Job Retention Bonus scheme was the “right policy” to help protect jobs.
Earlier, Mr Sunak admitted he was anxious about the state of the economy, which was “entering into a very significant recession” because of the crisis.
“We’ve moved through the acute phase of the crisis where large swathes of the economy were closed.
“We’re now able to safely reopen parts of our economy. That’s the most important thing we can do to get things going,” he told Sky News.