Britain is at the forefront of advanced economies in raising new taxes that will help reduce the budget deficit caused by the pandemic. He writes that the new tax issue is likely to be a popular discussion in political life around the world in the coming years Bloomberg. Parliament will vote on Wednesday on a 12 billion pound ($17 billion) tax on workers and businesses.
If adopted, it would mean that Chancellor of the Exchequer Rishi Sunak, whose Conservative Party has traditionally committed to tax cuts, would head up one of the highest tax burdens in UK history.
(In the UK, taxes are at an all-time high At the same time permanent level. Source: Bloomberg.com)
April’s proposal for a 1.25 percentage point increase is controversial for several reasons. The position of economists is unclear. Many analysts say lower borrowing costs – the UK’s 10-year debt yield is hovering around 0.7% – and an economy that remains weak will give reason not to rush into austerity.
“Britain is at the forefront of this talk globally,” said Mojtaba Rahman, European managing director of consultancy Eurasia Group, a former UK Treasury official. At the time of the pandemic, he said, “he was the first out the door to cut some spending,” then added, “But the European narrative next year is to support the recovery with additional spending.”
Domestic politics is also tense. The plan breaks promises made by the Conservative Party in their 2019 election platform and creates tension between the Sun and his prime minister, Boris Johnson. Although the chancellor says the best earners contribute the most, the UK’s National Insurance is far less advanced than income tax, meaning a small portion of the extra money will come from the rich. This contrasts with Sunak’s strategy with other governments seeking to get people with higher incomes to pay the bills for the pandemic.
However, Sunak’s plan does not represent a complete shift away from deficit spending. It is the beginning of a transformation and the government is also planning to increase spending by key ministries. The tax increase is only part of the fiscal reform proposed by Senk. More details are expected by October 27, when the chancellor announces a three-year budget and spending review.
Simon French, chief economist at Panmore Gordon & Co, former Chief of Staff of the British Cabinet Office, said the political damage to the Conservatives may be limited. The breach of the commitment pledged in the statement, he said, “is perhaps the least politically toxic moment after the once-in-a-century pandemic.”
However, there are economic risks. Imposing additional tax burdens on workers and businesses could erode consumer spending and confidence, potentially slowing recovery from the pandemic. Critics say the proportions of younger workers and the poor will be hit hardest, while those whose income comes from rents and pensions will not pay additional taxes.
Former chancellor Sajid Javid and current health minister told Times Radio on Wednesday that tax revenue in the UK is favourable compared to other industrialized nations. “Our tax rate will be around 35.5% of GDP even after tax,” he said. “It is still lower than in France, Germany and Italy. We are still one of the countries with the lowest tax rates among the G7 countries, and will remain so,” added the Minister of Health.
Sun’s other predecessor also agreed. The decision to raise the overall tax was “courageous” and “essential,” former Tory adviser George Osborne said on Tuesday. Common sense won again. But this praise has reservations. Osborne was the architect of the UK’s austerity measures in the decade following the 2008 crash, which distanced themselves from the unpopular policies of Johnson’s Conservative Party. Economists now believe that governments in the developed world withdrew budget support soon after the crisis, and as a result, economies grew more slowly than they should.
(Featured photo: The Palace of Westminster in central London on October 19, 2019. Photo: Isabel Infantis/AFP)