‘UK finance minister considers sweeping tax hikes’

British Finance Minister Rishi Sunak is considering a sweeping set of tax increases to help fix the huge hole in the public finances left by the coronavirus pandemic, newspapers reported.

Tax hikes suggested by Treasury officials could raise an extra 20-30 billion pounds a year and some of them could be announced in an autumn budget statement by Sunak.

However, officials working for Prime Minister Boris Johnson are fiercely opposed to a major tax raid on wealthier voters and want to consider spending cuts instead, a newspaper said.

Britain’s public debt has passed 2 trillion pounds ($2.7 trillion), pushed up by emergency spending on Sunak’s coronavirus job retention scheme, tax cuts for businesses and consumers and even a dining-out subsidy to coax people back into restaurants.

Sunak has previously said some taxes will need to rise over the medium term.

But he is under pressure to provide more support for employers when the job retention scheme - under which the state has paid 80% of salaries for most workers kept on in their jobs - expires at the end of October.

The reported tax increases under consideration ranged from a sharp jump in corporation tax - which is currently far below the international average - cutting incentives for private pension contributions and increasing capital gains tax rates.

Another newspaper said a reduction in foreign aid was under consideration. Officials were considering an end to a freeze on fuel duty and a tax for online retailers. Sunak was considering a proposal to boost the corporation tax rate to 24% from 19% to raise 12 billion pounds next year, rising to 17 billion in 2023-24.

A Treasury spokesman said: “We do not comment on speculation about tax changes ahead of fiscal events.”

Stephen Barclay, Chief Secretary to the Treasury, declined to comment specifically on any of the measures floated.

“The real objective is to reduce the economic scarring from COVID-19. The more we can limit that economic scarring then obviously the more flexibility that will give us as we go into the budget”, he said.

Britain’s economy shrank by a record 20% in the second quarter, the largest decline of any big country. There have been signs of a bounce-back but unemployment is expected to rise sharply as the job retention scheme is wound down.

Paul Johnson, Director of the Institute for Fiscal Studies think-tank, said it was too soon to raise taxes because of the uncertainty over the economy. The economy also faces a possible shock if London and Brussels fail to strike a trade deal soon on the relationship with the European Union (EU) once a Brexit transition period expires at the end of the year.

“The trick they need to play in this budget is to get the right level of stimulus as opposed to the reverse, whilst persuading people that they are taking seriously the need to deal with the deficit in the medium run,” he said.

Meanwhile, British car production rose sharply in July but is still well below last year’s level after manufacturing almost completely stopped in April at the start of the coronavirus lockdown, industry figures showed on Thursday.

A total of 85,696 cars were manufactured in Britain in July, 51% more than in June but 21% fewer than in July last year, the Society of Motor Manufacturers and Traders (SMMT) said.

“As key global markets continue to reopen and UK car plants gradually get back to business, these figures are a marked improvement on the previous three months, but the outlook remains deeply uncertain,” said SMMT Chief Executive Mike Hawes.

The SMMT said car production in the first six months of this year was the lowest since 1954.

The sector is now bouncing back strongly, following the rebound in other parts of the economy such retail sales, which are now higher than before the pandemic.

But the SMMT warned that uncertainty about Britain’s future trading arrangements with the European Union risked derailing the recovery.

Britain’s temporary post-Brexit transition arrangement expires at the end of this year, and no replacement is close to being agreed.

“The impact of tariffs on the sector and the hundreds of thousands of livelihoods it supports would be devastating, so we need negotiators on both sides to pull out all the stops,” Hawes said.

Around 80% of cars made in Britain are exported and most use parts imported from elsewhere in Europe.

Separately, Gatwick Airport, Britain’s no.2 airport to the south of London, said it needed to axe up to 600 jobs, nearly a quarter of its workforce, because of the travel slump caused by COVID-19.

The travel industry has been hit hard by the pandemic. Lockdowns which prevented flying from March to June have been replaced in the UK by quarantine rules, stopping a hoped-for rebound in traffic and leading to thousands of job losses.

Reuters