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Chancellor Rishi Sunak has told Conservative MPs that he plans to hike taxes, although was quick to reassure that there will not be a “horror show with no end in sight”. It comes as the Government begins to make moves towards overcoming the devastating effect the coronavirus pandemic and lockdown has had on the UK economy. He urged swathes of the new 2019 Tory intake – which included MPs from previously “Red Wall” seats – to put their trust in him over the “short-term challenges” the party and country faces.
Currently, the Chancellor is understood to be looking at hiking corporation tax from 19 percent to 24 percent to raise £12billion next year and £17billion in 2023/24.
Second-home owners would also be hit under proposals to require people to pay capital gains tax at the same rate as they pay income tax.
Many have urged the Government not to target already failing businesses with higher rates, and to not persecute middle class and low to high income band earners.
Mark Littlewood, the director general of the Institute of Economic Affairs (IEA) told Express.co.uk of a string of measures Mr Sunak could employ in order to avoid crippling Britons across the country.
He said: “I would rather there wasn’t a show of tax rises at all. One question is the overall burden. Do we push tax rates up or down? My own view is to increase tax in order to deal with the immediate deficit this year might actually be cutting off your nose to spite your face.
“We should see the cost of dealing with COVID a little bit like a war debt – that doesn’t mean we can ignore it, but if the Government genuinely believes this is a once in a generation shock, we could realistically pay that off over a generation.
“We could say that, for sake of argument, the crisis has cost the Government £400bn, so we’re going to pay this back at £40bn a year for the next ten years.
“I think that would be a more sensible way to do it than immediately try to raise £400bn in taxes now. I know the Government isn’t suggesting that at the moment, but we don’t need to be as quick on paying it back; we don’t need to solve the mess in the public finances overnight.”
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Mr Sunak’s talk of a “horror show” was the first time he had acknowledged that he will need to put up taxes to repair the estimated £300bn hit to public finances caused by the pandemic.
However, Mr Littlewood suggested what could prove more lucrative in the long run would be to revamp the UK’s system of taxation.
Britain is thought to have one of the longest tax codes in the world: a staggering 17,000 pages.
Mr Littlewood said: “The balance of our tax system currently is probably wrong. It is certainly very complicated.
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“It would be beneficial for the economy if it was simplified going forward that could couple with a separate argument about lowering rates.
“And I think while it is politically attractive to say that those with the broadest shoulders should carry the heaviest burden, there is a lot of evidence to suggest that if you have very high marginal rates, i.e, you start taxing people extraordinarily heavily on high profits or high incomes, that has a very deleterious effect on growth.
“We actually need more millionaires and billionaires in Britain, not fewer. If you put in tax rates or a system that strongly discourages the very successful, very high earners and high investors, then that actually does have a knock on effect to the economy as a whole.
“The economic consequences of drawing all of the enhanced tax revenue from a relatively small albeit affluent part of the population is likely to be about the worst strategy that you could pursue if indeed your biggest aim is economic growth.”
Mr Sunak asking Tory MPs for their “trust” suggests he intends to put up taxes for a finite period to reduce national debt before cutting them again ahead of the 2024 election.
Yet, while Mr Littlewood and other economists have urged Mr Sunak to reevaluate, other economists have concluded that tax increases will be needed across the board to cushion the financial blow.
Paul Johnson, the director of the Institute for Fiscal Studies, said income tax, national insurance or VAT would need to rise to have any real impact on the public finances.
He has remarked: “If you are looking to raise taxes, the likelihood is it’s going to have to be a fairly substantial increase.”
Prime Minister Boris Johnson appears to have signalled his support for Mr Sunak’s plans, and has said that the 20 percent basic rate of income tax could be increased by two or three percentage points and that the 40 percent higher rate could also go up.
Any such change would break the Conservatives’ “triple tax lock” promise not to increase income tax, national insurance or VAT for five years.
It comes shortly after the Government went ahead with a plan to cut national insurance in April earlier this year.
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