Tax  

MPs back tax hikes post coronavirus

MPs back tax hikes post coronavirus

Most members of parliament believe taxes will be increased to fund public services in the aftermath of the coronavirus crisis, according to a research.

A survey of 75 MPs across all major parties showed 72 per cent agreed taxes would increase while 83 per cent thought the state would play a greater role in the economy post-Covid.

Almost two-thirds of MPs backed a pay rise for NHS and care workers while more than half (56 per cent) said the same was true of other key workers, such as bus drivers.

Some 73 per cent agreed the government would be forced to make tough spending choices in the time following the pandemic, but just 40 per cent backed any form of public services spending cuts.

The survey was conducted by The House and published by Politics Home on Tuesday (May 19).

The problem

The UK government is set to be out of pocket to the tune of £300bn following the coronavirus crisis, as tax receipts drop and public spending rockets. This would be the largest single-year deficit since the Second World War.

Just this week chancellor Rishi Sunak warned the UK faced a “severe recession, the likes of which we have not seen” as a result of the lockdown measures set up to curb the coronavirus.

The Office of Budget Responsibility has previously warned the UK economy was set to face a record 35 per cent drop in output if the lockdown lasted three months, while warnings have also been sounded by the Bank of England, which last month said the UK was facing “severe economic and financial disruption” caused by Covid-19.

The economy shrank at the fastest rate since records began in March, with gross domestic product falling 5.8 per cent in the month. In the whole of Q1 it shrank 2 per cent. Over the course of 2020, the bank expects the British economy to shrink by 14 per cent.

Who will pay?

In order to fill the hole in the public purse, the government is likely to raise taxes — particularly if most MPs agree taxes must be raised to support public spending.

Rachael Griffin, tax and financial planning expert at Quilter, said in the long-term the Treasury was likely to hit income tax rates.

She said: “Taxes on income make up the largest proportion of the government’s coffers so even a fairly marginal change would have a big impact on the impending deficit. 

“However, any tax that reduces disposable income during a downturn will be hard to stomach, and so it is likely that income tax rates will remain unchanged in the short- to medium-term but will then increase in the long term, as the government sends a signal to the markets that they are committed to reducing the deficit.”

Ms Griffin also suggested a “one-off or ongoing levy on personal wealth” could be implemented in the UK as this would rebalance the wealth distribution and provide a significant boost to government revenue.