The government could abolish stamp duty land tax (SDLT) and reform council tax to kickstart the economy following the coronavirus crisis, the Institute for Fiscal Studies has said.
According to the institute, SDLT is a “particularly damaging tax” and by abolishing it the government could help to stimulate the economy.
Scrapping it could be coupled with a reformed council tax which could be used to replace any lost revenues, it added.
Currently, the government is running a SDLT holiday which increased the minimum threshold on which tax is owed from £125,000 to £500,000.
This was to try and encourage people to buy and sell after the coronavirus crisis caused a sudden fall in house sales.
The holiday is due to end on March 31, but there have been calls across the industry to extend it.
Although the government will need to come up with ways to raise funds to pay off its coronavirus debts after offering support such as the SDLT holiday, it is unlikely that substantial tax rises will be part of the Budget next month.
The IFS stated: “For now, Mr Sunak [Chancellor of the Exchequer] needs to focus on support and recovery. A reckoning in the form of big future tax rises is highly likely, but not as yet inevitable.”
The IFS has estimated that tax rises of around £60bn could be needed to ensure that government revenues cover day-to-day spending.
However, it warned there was a lot of uncertainty around this figure and that in fact a “considerably larger” amount could be needed, which is why any rises should not be implemented “any time soon”.
However, it admitted the chancellor should be preparing for them, and should not be looking to make any permanent spending increases for the time being.
Earlier this month, Paul Johnson the director of the IFS, told the Treasury committee it was “pretty unlikely” that taxes would not rise as a fraction of national income.
But others were more sceptical, with Julian Jessop, fellow at the Institute for Economic Affairs, believing if the economy rebounded as strongly as he expected, and if public finances continued to beat the Office of Budget Responsibility’s forecasts, there would be no need for tax rises.
The institute also said the furlough scheme must be gradually phased out if the economy were to recover.
Johnson said: "This will be just Rishi Sunak’s second budget, but his 15th major fiscal announcement.
“In it he needs to strike a balance between continuing support for jobs and businesses harmed by lockdowns, and weaning the economy off blanket support which will impede necessary economic adjustment. Any significant continuation of the furlough scheme must be limited and carefully targeted.”
Instead, the institute suggested that the employee job retention scheme could be tailored so that only industries which face long-term restrictions receive it, for example the aviation and airport industry.