Sunak to spend on saving jobs but may raise taxes
EXPERTS SAY BUDGET MUST ADDRESS INEQUALITIES AGGRAVATED BY COVID
BRITAIN is expected to keep vast emergency financial support propping up the UK’s virus-battered economy when unveiling its annual budget on Wednesday (3), but the chancellor could also raise tax to fight surging debt.
“The key thing is right now to keep supporting the economy... but also level with people,” chancellor Rishi Sunak said last Sunday (28), as Britain from next week begins to exit its third Covid lockdown. “It’s important ... to have strong public finances over time,” he said.
Reports suggest the chancellor will pump out extra billions of pounds to help save jobs and businesses. Businesses such as shops, bars, clubs, hotels, restaurants, gyms and hair salons will be offered £5 billion of additional grants, the government said last Saturday (27).
Britain is the worst-hit country in Europe with more than 120,000 Covid deaths and four million cases, but its economic recovery hopes have been boosted by its vaccination of millions of adults.
On the eve of the budget, business secretary Kwasi Kwarteng told the BBC that support – including furlough and the VAT cut for hospitality firms – will continue “while lockdown persists”.
The chancellor is expected to increase corporation tax, or a levy on company profits, from a UK record-low 19 per cent while sticking to the Conservative government’s pre-pandemic pledge not to increase income tax or value added tax (VAT). “An increase in corporation tax is likely to be, intentionally or not, the flagship measure,” Barclays said in a client note.
“Put in perspective, corporation tax is not a main lever in terms of revenues – around 10 per cent of tax receipts – but probably the path of least resistance as the government explores ways to fix its revenue shortfall.”
Prime minister Boris Johnson’s government has in fact cut VAT on food, accommodation and attractions during the coronavirus outbreak. It has also lifted the threshold at which stamp duty is due on home purchases, helping property buyers and the construction sector.
Both these temporary measures could be extended in the budget, according to economists.
A cross-panel of MPs, in a report on Monday (1), said it was too soon to raise taxes and that corporation tax should eventually be raised only moderately, while being combined with continued support measures for businesses.
“It is clear a very significant increase in the corporation tax rate would be counterproductive,” the Treasury Committee said.
Since April 2020, or soon after the UK’s first virus lockdown, the government’s net borrowing has ballooned by £271 billion, according to recent data.
A big chunk of the outlay has been to keep millions of privatesector workers in jobs via the furlough scheme, with the bulk of wages to be paid until the end of April. Again, this could be extended.
Analysts argue that Britain must use the budget to both extend coronavirus financial support measures and tackle inequalities exacerbated by Covid.
In a joint report, the Institute for Fiscal Studies and Citi bank noted lower-income households had not been able to save as much cash as richer counterparts, sparking inequality in society during the crisis.
They added that Sunak must also help the economy – which has shrunk by around 10 per cent owing to the pandemic – adjust to the “triple challenge” of Brexit, Covid and the green energy transition.
Labour said Sunak was already putting pressure on local authorities to increase taxes. “We are an outlier both in terms of having had the worst economic crisis of any major economy, but now also in having a government that seems to be focused on increasing tax,” shadow chancellor Anneliese Dodds said.