Substantial tax increase maybe introduced to pay for the COVID-19 spending spree

The Sunday Times has reported the chancellor is set to increase taxes to raise revenue.

Speculation, the UK Treasury, could raise 20bn through extra taxes to deal with the fallout from Covid-19.

Mr Stephen Barclay, the chief secretary to the Treasury, over the weekend refused to comment on speculation that pension tax-relief could be cut, capital gains tax increased and corporation tax hike from 19% to 24%.

The Office for Budget Responsibility’s (OBR) scenario warns of a record 322bn in borrowing this year, and a considerable deficit that still endures at 116bn or 4.6 per cent of GDP in 2024-25.

Tory MPs and businesses have reacted with shock to the potential corporation tax hikes as firms struggle with various challenges. The lockdown has reduced the size of the economy by 20.4 per cent between April and June.

According to the Treasury’s own estimates, to increase corporation tax to 24% would raise 17bn per year, while capital gains tax increases would generate another 1.05bn.

Another target is cutting pension tax relief to 20% would raise 11bn. The Institute for Fiscal Studies has calculated, while a 2% online sales tax would bring in 2bn and a 1% increase in fuel duty 295m.

Tory MPs are nervous about any increase in corporation tax because increasing it to 24% would seem to be in bed with Labour’s tax policy.

Landlords are likely to be a target yet again with direct or indirect taxes. The chancellor has a balancing act to perform, trying to raise funds to pay for the aftermath of COVID-19 while attempting to stimulate the economy.  The debt is vast and must be reduced; however, at the same time, the economy requires a stimulus so jobs can be created.

Dr William Masih, Director of communication at the British Landlords Association, said: “Most landlords have had to take a haircut on the rental income due to COVID-19. While landlords maintain their investment also at the same time, most hold down a job too. The lockdown has had a detrimental effect on their finances, a double blow.”

“the letting sector cannot afford any further taxes, the operating costs have already increased substantially due to tax changes and other associated costs”. He said.

Source: British Landlords Association, Financial Times

Author: Amanda Goldsmith

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Date: 31st of August 2020

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