UK's Sunak flags major tax rises as Covid bill tops £400bn
The United Kingdom will hike taxes on its biggest companies and millions of middle-earners in order to repair government finances in the wake of the coronavirus pandemic, says finance minister Rishi Sunak.
The British government has borrowed vast sums of money to fund over £400 billion ($558 billion) in stimulus during the pandemic. Total government debt has skyrocketed to £2 trillion ($2.8 trillion), nearly 100% of GDP, a level which has not been seen since the 1960s, according to the Office for National Statistics.
Speaking in parliament on Wednesday, Sunak said the government will freeze the personal tax-free allowance and the higher rate threshold from April 2022, instead of increasing them in line with inflation, a move which will bring 1.3m people into the tax system and create a million higher rate taxpayers by the middle of the decade.
"Just as it would be irresponsible to withdraw support too soon it would also be irresponsible to allow future borrowing and debt to be left unchecked," he said.
“Our economy has shrunk by 10% – the largest fall in over 300 years. Our borrowing is the highest it has been outside wartime. It’s going to take this country – and the whole world – a long time to recover from this extraordinary economic situation,” he added.
"It's going to be the work of many governments over many decades to pay it back," noted Sunak.
The Office for Budget Responsibility (OBR) has said tax revenues, as a share of economic output, were going to hit 35%, the highest since Roy Jenkins was Labour chancellor in the late 1960s.
Paul Johnson, the director of the Institute for Fiscal Studies thinktank, said the budget is indicative of a new phase in the country’s economic history.
“Sunak made much of his desire to be honest and to level with the British people,” Johnson said. “The fact that he felt constrained to raise taxes by hitting companies and through freezing allowances, rather than through more explicit rises in people’s taxes, suggests there are limits to how far he wants to level with us as he attempts to raise the overall tax burden to its highest sustained level in history.”
Tony Danker, the director general of the Confederation of British Industry, the country's largest business lobby group, said in a statement that the move to raise taxes significantly will have serious consequences.
“Moving Corporation Tax to 25% in one leap will cause a sharp intake of breath for many businesses and sends a worrying signal to those planning to invest in the UK.”
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