BRITS could face a tax hike to pay for the coronavirus crisis, experts warn.
Paul Johnson, Director of the Institute for Fiscal Studies think tank, predicted that tax rises would come “eventually” to pay back all the billions Chancellor Rishi Sunak has borrowed to help Britain through the pandemic.
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At a post-budget briefing this morning he said that the focus for now would be on the economic recovery, rather than working out the finances.
Mr Johnson said earlier: “The time to pay for all this will come, but not this year and not next.
“The capacity will depend on how the economy recovers. Let’s hold in the back of our minds…
“A reckoning in the form of higher taxes will come, eventually.”
And he added: “This is no normal recession. It’s the deepest in history.”
Annual borrowing as a share of the economy is going to be at its highest in 300 years, the IFS predicted.
The Chancellor admitted earlier that he did want to balance the books in the medium term, hinting that things could have to be cut back again in future.
“We can’t sustainably live like this, of course we can’t, and over the medium term we can and we will return our public finances to a sustainable position,” Mr Sunak told the BBC.
Boris Johnson earlier this week vowed to stick to his election promise not to raise VAT, income tax or National Insurance to pay for the coronavirus pandemic.
Mr Johnson told the Yorkshire Post during a visit to a construction site in Goole yesterday: “I don’t normally talk about fiscal stuff because I leave that to Rishi (Sunak) the Chancellor but what is in the manifesto is in the manifesto.
“We were elected, we got a big majority from the British people to deliver on that manifesto and we are very, very sincere in wanting to do that.”
He instead may have to look elsewhere for other taxes to hike up to get the public debt under control again.
The Government has shelled out £190billion in spending over the course of the crisis.
And including all the extra revenue in business rates holidays and other measures to help firms stay afloat, the total cost is in the region of £350billion.
Schemes such as the furlough scheme has been costing the Government as much as £14billion a month.
Tax rises could be equivalent to 1.5 per cent of GDP – £35bn a year in extra revenue – the IFS predicted earlier.
Carl Emmerson said the figure is contingent on recovery but “it could be quite a chunky tax rise”.
However, it also said that it expected further measures to come in the Autumn budget, possible targeted tax cuts to affected industries.
If the economy bounces back quicker than predicted, more tax revenues would likely help to plug the gap.
But if more people lose their jobs and a recession drags on, this would be much harder.
At the moment the cost of borrowing is very low as interest rates are at record levels.
In future as they rise, the cost of servicing Britain’s huge debts may become less manageable.
Yesterday the Chancellor outlined his mini budget to help Britain get back on course after the coronavirus crisis.
But it was revealed the UK’s tax authority queried some of his plans and their value for money.
Jim O’Hara, HMRC’s permanent secretary, wrote to the chancellor earlier this week about the Job Retention Bonus and Eat Out To Help Out policies.
Advice received by HMRC and the Treasury “highlights uncertainty around the value for money” of the proposals.
However, he did agree there was a “compelling case” for it to go aead.
The cost of spending on the pandemic has increased by 40 per cent since last month, when the ONS measured it at £133bn.
The IF’s Mr Johnson said there was a “value for money issue” about the schemes too.
He said this morning: “A lot, probably a majority, of the job retention bonus money will go in respect of jobs that would have been, indeed already have been, returned from furlough anyway.
Much of the plans to cut VAT and stamp duty too “will be deadweight”.
However, Treasury sources stressed that the stamp duty changes would save an average of £4,500 per person moving home.
Many of the areas the PM has promised to level up by boosting spending will struggle to keep up with the rest of the country in the economic recovery from coronavirus.
London has been hit hardest by job losses – but will be able to make up lost ground as the country reopens.