BRITAIN’S £130BN TAX BOMBSHELL
Treasury revenue will be ‘devastated by pandemic’
THE Treasury is set to lose up to £130billion in taxes due to the Covid-19 crisis as experts warn of “a recession to end all recessions”.
The blow – calculated for this fiscal year after businesses were shuttered and many were left unable to work – is more than the Government is spending on propping up the economy.
As the UK death toll hit 33,186 yesterday, Chancellor Rishi Sunak admitted we are “very likely” already in the middle of a “significant recession”.
But Paul Johnson, director at the Institute of Fiscal Studies, warned that we are facing major turmoil. He said: “It is a mega-recession. It is a recession to end all recessions, in terms of its scale. It’s just a very different kind of one to ones we have had in the past because it resulted from a different thing, a pandemic. It has resulted from a different response, Government closing part of the economy down.
“And it should result in a different route out and we hope a faster route out. But we cannot know that it will be a faster route out.”
Carsten Jung, an economist at the IPPR think tank and a former Bank of England official, added: “The lion’s share of the cost of dealing with Covid-19 will be the lost tax. The tax
loss is more than is spent in additional support to the economy.
“The final amount depends on the economic scenario.
“It depends on how quickly businesses bounce back and consumers start to spend.
“Also, how fast demand picks up for products and if people have jobs in coming months.”
The expected loss to the Exchequer from income tax, National Insurance, VAT, corporation tax, excise duties and even council tax was estimated by the Office for Budget Responsibility.
It makes up the biggest chunk of the overall £327billion potential cost of the pandemic.
Statistics showed that the UK economy contracted by two per cent in the first quarter of 2020 – which only includes one week of lockdown in March.
GDP plunged by 5.8 per cent in March alone – the largest monthly fall since records began in 1997 – and experts predict that secondquarter figures out later in the year will be even worse.
Preliminary numbers from HMRC show income tax receipts for March 2020 down 21.3 per cent on last year’s March take.
Total tax income in March 2019 was £43.6billion – and this March it was down to £41.3billion, before the pandemic really started to squeeze the economy.
The devastating news sparked fresh demands for major international corporations to pay their fair share of tax in the UK.
Stephen Moss, founder and managing director of Sourced Capital, said falling income tax levels highlight the need to hold big operations such as Amazon and Starbucks accountable.
He said this was particularly the case “given the fact that they largely continue to operate throughout the pandemic, with some even seeing an uplift in income as a result”.
Mr Moss added: “Many will be worried that lost tax revenue during the pandemic will be recouped via higher taxation over the coming years, and so allowing them to contribute to this worry is simply unacceptable.
“It’s clear that the spread of the coronavirus has had a notable impact on both the total number of receipts received by HMRC and total income tax.
“The latest figures show a monthly reduction of over half a billion when compared to the same time last year. This demonstrates the direct impact the pandemic is having on the economy.
“This is, of course, due to many finding themselves on furlough or unable to work and it’s likely we will see a further, even more pronounced decline over the coming months.”
Britain’s death toll from the pandemic rose by 494 to hit 33,186 yesterday while cases rose by 3,242 to 229,705.
Steve Webb, partner at consultants Lane Clark and Peacock, said the coronavirus crisis is likely to have had a devastating effect on Government tax revenues.
He added: “With fewer people in work and millions more on reduced wages, revenue from income tax and national insurance contributions will take a huge hit.
“Households spending less will reduce revenue from VAT and excise duties on things like petrol, while the collapse in the housing market will lead to a slump in stamp duty revenues.
“Taken together, it is likely tax revenues will be tens of billions of pounds short in 2020/21 of the levels expected even at the time of the March Budget.”
A confidential Treasury assessment of the Covid-19 crisis estimates it will cost the Exchequer almost £300billion this year.
The document drawn up for the Chancellor also sets out a proposed “policy package” of tax increases and spending reductions that may have to be announced within weeks to “enhance credibility and boost investor confidence” in the economy.
The document, which is dated May 5 and marked “Official – market sensitive”, reveals the “base case scenario” now forecasts that Britain will have a £337billion budget deficit this year, compared with the £55billion forecast in March’s Budget.
The IFS estimates the total cost of the furlough scheme will come close to £100billion by the autumn. And the bill for supporting our five million self-employed workers is
set to be £10billion. The OBR’s report said: “Coronavirus lockdown will deliver a large (but hopefully temporary) shock to the economy and public finances.
“In addition to its impact on public health, the outbreak will substantially raise public sector net borrowing and debt, primarily reflecting economic disruption.
“The Government’s policy response will also have substantial direct budgetary costs but the measures should help limit long-term damage to the economy and public finances – the costs of inaction would certainly have been higher.”
Meanwhile, building sites in England will be allowed to operate until 9pm, Monday to Saturday, in residential areas and beyond that in non-residential areas to help restart the economy. Communities Secretary Robert Jenrick, pictured left, said: “Varied start and finish times will make it much easier for sites to observe social distancing, take pressure off public transport like the Tube in London and keep Britain building.”
Police were also told they had no powers to enforce two-metre social distancing in England as fresh guidelines were issued by the College of Policing and the National Police Chiefs’ Council.
And holiday giant Tui said it was looking to cut up to 8,000 roles worldwide.