Rishi Sunak, Britain’s Chancellor of the Exchequer, will have to plug a GBP60bn hole in the country’s finances due to Covid-19 in the forthcoming budget says the Institute of Fiscal Studies.
Raising taxes is the obvious way to fill the gap, but the think-tank is advising the chancellor to hold fire – for now at least.
So much uncertainty surrounds the Covid-19 pandemic and how quickly restrictions might be lifted and life return to normal that Sunak’s efforts should be directed towards keeping people employed and maintaining investment says the IFS
“For now, Mr Sunak needs to focus on support and recovery. A reckoning in the form of big future tax rises is highly likely, but not as yet inevitable,” IFS Director Paul Johnson said.
As well as Covid-19, Britain is having to cope with the problems caused by Brexit and these dual dilemmas mean any reduction in support measures should be gradual and accompanied by additional help for health, education, justice and local government, said the report.
Options open to the Chancellor include raising income tax, though Boris Johnson explicitly ruled this out ahead along with VAT and national insurance hikes ahead of his 2019 election win.
An extra GBP60bn is equal to 9p on income tax rates, which would be unrealistic said the IFS so the money is likely to be recouped in other ways.
A wealth tax is one option that has been mentioned even by some Tory MPs, raising capital gains tax thresholds to align them with income tax rates are another while scrapping pension relief for the wealthy and raising corporation tax are other possibilities.
Sunak has spent heavily to help the country cope with Covid-19 and government net borrowing has soared to almost GBP285bn this year already with the deficit set to rise to GBP400bn over the fiscal year, a level not seen since either of the two world wars.
The Chancellor is also under huge pressure to maintain support for businesses through an extension of the job furlough scheme and to the housing market via the stamp duty holiday running beyond its 31 March deadline.
An increase in universal credit by GBP20 a week should also be retained said the IFS.
The Budget is scheduled for 3 March.