Of all the uncertainties caused by the Covid-19 pandemic, one thing feels beyond doubt at some point, taxes are going to have to rise.
Tackling the crisis has led to a massive surge in UK public spending. Combined with the impact the coming recession will have on tax receipts, the Financial Times estimates a budget deficit exceeding £337bn could be the result.
The chancellor Rishi Sunak faces tough choices. Increasing government borrowing could cover much of the shortfall, but the prime minister has ruled out deep cuts to public spending seen after the 2008 financial crisis. While unpopular, increasing some taxes would send a signal that ministers are getting the deficit under control.
This week, a leaked Treasury document presented a shopping list of potential tax rises to help balance the books including increases to income tax and ending the state pension “triple lock” that would involve breaking manifesto promises.
Treasury and Downing Street officials have stressed it is “too early to speculate about any future decisions” but tax experts are already predicting when, where and by how much different taxes could rise.
“Tax rises are inevitable, but the government is under pressure to kick-start the economic recovery and protect jobs so it won’t want to increase the tax load on businesses,” says Nimesh Shah, partner at Blick Rothenberg, a tax advisory firm.
Experts believe the burden is more likely to fall on wealthy individuals as well as providing the chancellor with a historic opportunity to reform areas of the UK tax system that have proved too problematic for many of his predecessors.
Here, FT Money assesses the choices the chancellor faces ahead of the autumn Budget, including calls for a new wealth tax and a shake-up of how the self-employed are taxed plus the tax breaks he could remove, including those on pensions and property.
Income tax
Raising income tax would be the quickest and most far-reaching way of raising revenue it accounts for nearly one quarter of total tax receipts but it would also be politically controversial.
The Conservatives manifesto pledged the party would “not raise rates of income tax, national insurance or VAT” the three biggest contributors of tax revenue but experts feel the public would be forgiving if these were broken.