Schools have broken up – in a matter of fashion – and some Britons are already heading off to enjoy the hedonistic delights of Magaluf on the beautiful island of Mallorca, only to be met with tough crackdowns and lockdowns.
Unemployment is going to blight the nation as the economy contractsYet, holiday or no holiday, rain or shine, it is going to be a worrying summer for many households as the end of furlough begins to appear on the horizon.
Lockdown, crackdown, followed by financial meltdown. It is not going to be pretty from here on in.
Unemployment is going to blight the nation as the economy contracts at an alarming rate.
There is also another horrible monster lurking on the horizon. It is called tax, and in particular, tax rises.
Earlier this month, Paul Johnson, the highly regarded director of the Institute for Fiscal Studies, said that a “reckoning, in the form of higher taxes, will come eventually”.
Maybe this ‘reckoning’ will come in the Autumn Budget, maybe later, but at some stage the government is going to have to claw back some of the cost of the £190bn of support it has so far provided to keep the economy falling off a proverbial cliff.
When this tax grab begins, it will be the middle classes and the wealthy who are likely to bear the brunt. Fair? Yes.
But it is not going to go down very well with many Tory supporters who will argue with some political justification that such tax hikes are normally (not always) the preserve of Labour governments.
For sure, the government will be walking a tightrope.
The whispers have already started about what the chancellor of the exchequer Mr Rishi Sunak might have in store. Earlier this month he set the cat among the pigeons by ordering a review of the regime governing capital gains tax.
Although such ‘reviews’, undertaken by the Office for Budget Responsibility, are not uncommon (the last one was in 2018 when the OBR looked into inheritance tax), the timing of the announcement suggested that Mr Sunak may already have one eye on CGT as one way to boost the government’s coffers.
But it will not necessarily start or end with CGT.
As the Budget creeps ever nearer I am sure that rumours about other taxes rising will bubble to the surface. There will also be speculation about some generous tax breaks being curtailed.
The Public Accounts Committee has already called for a review of pensions tax relief that cost £38bn in the financial year ending April 2019.
The parliamentary committee is not totally convinced about the merits of the tax break – and in particular whether it “just enables those already saving comfortably to save more”.
I imagine that higher rates of capital gains tax would be a relatively easy measure for Mr Sunak to justify.
After all, the current rates applied to crystallised gains made by basic, higher and additional-rate taxpayers are lower than for those on income.
Also, it is not as if most capital gains on investments made by taxpayers cannot already be protected from tax – through the astute use of their £12,300 annual tax-free capital gains allowance, maximising their generous annual Isa allowance, and using pensions to invest.
Of course, higher CGT rates could be combined with a slashing of the annual exemption, a reduction in the £20,000 Isa allowance or the £40,000 annual pension allowance – or all three together.
Such a ‘combined’ move, I am sure, would meet with howls of protest, although these would sound like whimpers compared with the venting of spleens that would take place if Mr Sunak decided to widen the CGT net to include the sale of first homes.
That would represent a step too far for most homeowners up and down the country and I am sure it would result in defeat for the Tories at the next election.
What is interesting is that tax rises are now seen as inevitable.
Yet when Labour published its general election manifesto late last year, it was widely ridiculed for proposing higher taxes to fund a £83bn spending spree (yes, I was among the ridiculers).
With regards to CGT, Labour stated that “we will end the unfairness that sees income from wealth taxed at lower rates than income from work”.
It would do this, it said, through higher CGT, a savage CGT allowance cut and higher taxes on dividend income.
Some of these measures could well end up being introduced by Mr Sunak. How ironic.
Enjoy the summer. The calm before the storm.
Jeff Prestridge is personal finance editor of The Mail on Sunday
