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Tax hikes on the way

The Imprudent Accountant asks how politicians are going to balance the books following their plethora of pre-election promises. The only answer he can find is via hefty tax rises.

4th Nov 2019
Partner An unnamed firm
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inflating balloon with tax on it

I hate to be a prophet of doom but unless I’m missing something, it seems inevitable that before too long some of us are going to be paying a lot more tax.

It doesn’t even matter who wins the election.

Having written this article 24 hours before publication, it is pleasing to see that the Resolution Foundation is all over the news having come to exactly the same conclusion.

Without wishing to diminish their appeal, which could be considerable in the current circumstances, it seems unlikely that the Liberal Democrats, Scottish Nationalists or even the dear old Democratic Unionists will have much influence on tax policy, even if they hold the balance of power.

If Labour comes out on top, it is a party committed to raising taxes, especially for those in the operations of society ie accountants and their clients. Despite claims that only the top 5% will pay additional tax if they get into office, their lavish promises will almost certainly only be funded if there are wider tax rises than those currently envisaged.

The Conservatives are another kettle of fish. They currently present themselves as the advocates of low taxes. However, the economics as currently proposed by their leading lights do not add up.

Boris Johnson and his pals are committing themselves to generous new swathes of spending on a daily basis. If they keep to their words (and which politician does not?!) then education, health, social care and transport are all in for field days. It can only be a matter of time before those in the defence sector, and anyone else that hasn’t yet had a promise, makes their own bid for extra cash.

That is before the £70bn that the independent National Institute for Economic and Social Research estimates that the Prime Minister’s Brexit deal will cost the nation. If we leave Europe without a deal, which is still on the cards, they suggest that finances will be even harder hit.

As suggested in an earlier column, to date Sajid Javid has barely hinted at any in-depth knowledge of our tax system. He claims to be “a low-tax guy” but hasn’t yet got serious about any policies.

The closest we have got to a Conservative Party line comprises suggestions to abolish inheritance tax and raise the threshold for higher rate taxes. Rather than helping to balance the books, these policies would increase the national debt.

Therefore, assuming that the polls are correct and Johnson emerges with an overall majority, unless he scraps many of his spending plans the money will have to come from somewhere.

We could just go into debt freefall. That would be an obvious short-term solution but could eventually lead to horrendous economic consequences with Britain becoming the new Argentina. On the plus side, now that we will use plastic, at least there will be no need to buy suitcases to carry around the cash required to buy a pint of milk and a loaf of bread.

The only other alternative is to come up with a series of tax-raising measures. The Chancellor of the Exchequer has hardly been helped by a year in which there has been no Budget at all. As a result, the government has lost the years income by failing to crack down on abusive tax avoidance but has also missed out on a golden opportunity to ease in measures that would raise taxes with a degree of subtlety.

Instead of that nutcracker, there has to be every possibility that if he eventually gets to the dispatch box some time in 2020, Mr J will be obliged to take some measures that could be deeply unpopular. Will he raise income tax, National Insurance Contributions or VAT? Nothing else is likely to make a significant difference.

On the positive side, whenever tax exposure increases, clients reach for the phone and call in the experts.

We have fun times ahead.

Replies (1)

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Hallerud at Easter
07th Nov 2019 03:11

"That is before the £70bn that the independent National Institute for Economic and Social Research estimates that the Prime Minister’s Brexit deal will cost the nation."

I think that may be the pain we all take before HMG raids what we have left after meeting these extra costs with some handy tax increases.

Both parties seem to be partially working on a debt model, balancing the books (not that they managed) is so yesterday, so yes, some taxes, higher borrowings, means test a few more bits we thought we got back as right and buy a few votes for the next time .

Not so sure on your Conservative majority (or Labour) and that may be what both rely upon, a minority government cannot possibly be expected to deliver on its promises- we wanted to do x but you inconsiderate voters by not giving us a majority stopped us will be their message.

This election is really hard to call, whilst overall polls are saying one thing some of the Survation single constituency polls are painting a very different picture of very heavy tactical voting with the Lib Dems hitting at some very big mainly Conservative majorities, now these could narrow, buyer remorse as election day gets closer, but there is nothing here to me that yet suggests either Conservatives can get an overall majority or Labour can even get close to an overall majority.

I think we have seen peak Conservative in Scotland and would not be that surprised if they lost say ten of their thirteen, I think Libs will make some progress down South and nothing screams Labour votes jump ship to Conservatives.

Not sure on numbers yet, my first uneducated guess has Conservatives only winning about 260 max (down from previous 299 though of course they dumped some of these) , I think Nats could be up maybe nearer 50 than current 35, Libs certainly rise from 2017 12, I can see 30-60 seats depending on campaign and do they get hit by late squeeze.

I think what Brexit has brought us is the need, long term, for consensus government, our politicians I think may just have to get used to this and start learning how to operate on such a basis, frankly since the last Labour government finished in 2010 there has been little sign of any party getting a strong majority and to me, barring the unknown unknowns of campaigning, that is the outcome I expect this time.

(Right- with my record on predictions above means Conservatives now romp it)

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