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Government leaks pandemic tax rises

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.

3rd Sep 2020
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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.

Tax relief

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.

Tax leaks

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.

Replies (10)

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By mumpin
03rd Sep 2020 13:47

Do you mean swinging or swingeing?
Swinging is car keys in the fruit bowl wife swapping business in suburbia.
Swingeing is drastic.

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By AndyC555
03rd Sep 2020 14:27

"Swinging is car keys in the fruit bowl wife swapping business in suburbia."

I went to one of those parties once. Ended up going home with a Ford Mondeo.

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By AWeb72
03rd Sep 2020 15:25

There's Swiss Tony joke there...

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By Echo761
04th Sep 2020 09:46

Was it the same one you arrived in? ha ha ha

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By memyself-eye
05th Sep 2020 08:41

No, he arrived in a Ford KA - a result for him then!

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By AndyC555
03rd Sep 2020 14:26

It's common to read in supposedly informed media reports how the "very wealthy" can avoid supposedly huge amounts of tax by investing in their pensions and getting top rate tax relief. This supposed outrage is always used to back up calls to limit relief to the basic rate of tax.

I suppose it depends on who is considered "very wealthy" but someone earning over £312,000 can currently put a maximum of £4,000 into a pension and get tax relief for it. Saving them a whopping £1,800 tax. If that were reduced to the basic rate, that would fall to a saving of £800. Costing Mr (or Mrs or Ms or Xe) Megarich £1,000.

Tax Justice!

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By 0098087
04th Sep 2020 10:27

Increase CGT on second homes. Don't see the problem. Usually it's the people at the bottom that get screwed over.

Oh and the VAT should have been cut to 10% across the board instead of this 5% soft drinks nonsense.

Alistair Darling cut VAT and it worked. No one remembers Osborne insanely increasing to 20% when it was 17.5%.

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By NeilW
04th Sep 2020 10:43

It's when you read this approach from a Chancellor that you do wonder who they have in their circle and whether any of them could draft a balance sheet if you asked them to.

Gilts are savings assets first and foremost. They are liabilities of HM Treasury by accounting identity only.

Since my spending is your income less tax and your spending is my income less tax, then when those savings stop being saved and are spent they will necessarily generate additional taxation that will eliminate the need for those savings (assuming the money continues to be spent and not saved again!)

All of which is blisteringly obvious if only people would draw up the balance sheets, do the transactions and watch how the balance sheet changes.

There is no need for tax rises at present. In fact it is very dangerous to the economy if we do.

As the economist Warren Mosler would put it: "The unemployment lines tell us we are grossly over taxed even for the current high level of government spending"

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RLI
By lionofludesch
05th Sep 2020 07:46

I read a piece in the Telegraph or Indy or somewhere last week saying that the Chancellor shouldn't be raising Class 4 NIC because most self employed pay themselves by dividends and got no benefit from CJRS.

Oh. Right. I didn't know that ......

More seriously, I suspect a hike in Class 4 will come. But now is not the time for tax hikes. Give the economy time to recover.

I say this as a disinterested party as I've stopped paying NI of any kind.

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By BJNATHAN
29th Sep 2020 08:51

Tax rises for a fragile economy just doesn't make any sense. What is needed is a stimulus to the economy more liquidity not less. Where have these leaks come from? Are we sure they are not the views of the few rather than the many who decide upon government policy? Why are we not discussing the increased support that is needed rather than increasing taxes? The Liberal Democrats are proposing a universal income for all, why are we not discussing that as a way forward to restart our economy?

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