Britain is expected to keep vast emergency financial support propping up the UK’s virus-battered economy when unveiling its annual budget Wednesday, but could also raise tax to fight surging debt.
“The key thing is right now to keep supporting the economy… but also level with people,” finance minister Rishi Sunak said Sunday, as Britain from next week begins to exit its third Covid lockdown.
Britain is the worst-hit country in Europe with more than 120,000 Covid deaths and four million cases but its economic recovery hopes have been boosted by its vaccination of millions of adults.
Reports suggest that Chancellor of the Exchequer Sunak will pump out extra billions of pounds to help save jobs and businesses.
But he is expected also to increase corporation tax, or a levy on company profits, from a UK record-low 19 percent while sticking to the Conservative government’s pre-pandemic pledge not to increase income tax or value added tax (VAT).
“An increase in corporation tax is likely to be, intentionally or not, the flagship measure,” Barclays said in a client note.
“Put in perspective, corporation tax is not a main lever in terms of revenues — around 10 percent of tax receipts — but probably the path of least resistance as the government explores ways to fix its revenue shortfall.”
Prime Minister Boris Johnson’s government has in fact cut VAT on food, accommodation and attractions during the coronavirus outbreak.
It has also lifted the threshold at which stamp duty is due on home purchases, helping property buyers and the construction sector.
Both these temporary measures could be extended in the budget, according to economists.
A cross-panel of MPs, in a report Monday, said it was too soon to raise taxes and that corporation tax should eventually be raised only moderately, while being combined with continued support measures for businesses
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“It is clear that a very significant increase in the corporation tax rate would be counterproductive,” the Treasury Committee said.
Committee chair and Tory MP Mel Stride noted that with Britain’s “public finances on an unsustainable long-term trajectory, our clear message is that Budget 2021 is not the time for tax rises or fiscal consolidation, which could undermine the economic recovery.
“But we will probably need to see significant fiscal measures, including revenue raising, in the future,” he added.
– Soaring debt –
Since April 2020, or soon after the UK’s first virus lockdown, the government’s net borrowing has ballooned by £271 billion ($378 billion, 314 billion euros), according to recent data.
A big chunk of the outlay has been to keep millions of private-sector workers in jobs via the government’s furlough scheme, with the bulk of wages to be paid until the end of April. Again this could be extended.
Analysts argue that Britain must use the budget to both extend coronavirus financial support measures and tackle inequalities exacerbated by Covid.
In a joint report, the Institute for Fiscal Studies and Citi bank noted that lower-income households had not been able to save as much cash as richer counterparts, sparking greater inequality in society during the crisis.
They added that Sunak must also help the economy — which has shrunk by around 10 percent owing to the pandemic — adjust to the “triple challenge” of Brexit, Covid and the green energy transition.
The budget is expected to confirm the launch of an Infrastructure Bank with £12 billion in capital and £10 billion in government guarantees.
The bank is set to finance private sector projects in the green economy, focusing on areas such as carbon capture and renewable energy.