Government leaks pandemic tax risesby
Is Rishi Sunak about to introduce swingeing tax rises as hinted by leaks to the media? Philip Fisher considers the advisability of raising taxes now and addresses this weekend's government leaks.
The weekend papers from the category that regularly receives leaks from government offices were awash with scare stories about tax rises coming soon.
There is no doubt that having taken the national debt to unprecedented levels, Chancellor Rishi Sunak will at some point need to find some cash.
Following a decade of cuts, there is very little more that can be taken out of expenditure, which leaves tax-raising as an obvious route.
To tax, or not to tax?
However, the more sensible economic commentators have suggested that 2020 would be the worst time to stifle a stuttering economy, with the need to create or retain jobs and businesses far more of an imperative than getting a little bit closer to balancing the books of UK plc.
The suggestions also seem unusual from a Tory government, given that they are largely directed towards the very voters who put that government in place less than a year ago and, more significantly, those who are likely to vote the same way next time around.
Despite previous manifesto assurances, Paul Johnson of the Institute for Fiscal Studies suggests that “Mr Sunak will have to hike rates of the most high-profile taxes, like income tax, national insurance and VAT, in order to raise the “really serious amounts of money” needed to fill the black hole in state finances.” However, he believes that autumn 2020 is too early to implement such plans.
Capital Gains Tax
There would be a great deal of logic from a simplification perspective in taxing capital gains at income tax rates. However, that will be costly for those who make gains, almost always the relatively well-to-do.
Bearing in mind that many corporations will be suffering losses at the moment, raising corporation tax would appear to be something of an empty gesture, potentially hitting those that are most likely to be able to restart the economy, if coronavirus ever actually abates.
A Budget wouldn’t be a Budget without everybody’s favourite non-starter. Therefore, it comes as no surprise to discover that the leak also included the suggestion that there would be a reduction or elimination of tax relief on pension contributions. Don’t hold your breath on that one, since it has been a pre-Budget staple for what feels like a couple of decades.
That makes no sense unless you take an uber-cynical view of political shenanigans.
For decades now, the Chancellor of the Exchequer has leaked prospective tax rises to the Sunday papers a few days before an impending Budget.
They have then garnered ridiculous amounts of completely unwarranted and undeserved praise by not announcing the tax rises that they had never intended to implement in the first place.
It is always possible that this Chancellor will be different but at the moment if you fancy popping down to any bookmaker that still has a presence on the high street or tapping into them online, it might make more sense to put your money on a few cosmetic tax rises but nothing serious on any of the major fronts this time around.
However, please do not take this as either investment or gambling advice. I am the last person that you should regard as a tipster, and I'm not permitted to give investment advice.