The UK government’s total fiscal support for businesses and individuals impacted by the state-mandated coronavirus shutdowns will rise to £407 billion, the Chancellor has said, and years of tax rises are on their way to pay for it.
Britain’s Chancellor Rishi Sunak has presented a mixed picture of the health of the country after nearly a full year of on-off lockdown, offering continued government handouts and tax cuts for some, but also withdrawing future tax falls in some areas, and ordering outright tax rises in others.
Headline announcements include the extension of the various coronavirus support schemes, including cash support to businesses and furlough payments to laid-off workers until September in some cases, well beyond the projected end of lockdown. This is to cushion the shock of reopening the economy, the Chancellor said.
This and other support to businesses will see the government’s debt rise to record levels. The Chancellor will have spent £407 billion over two years on coronavirus support, he said, paid for with £355 billion in new borrowing. This will be the highest level since the Second World War.
Decade of Conservative Rule Saw Tax Raised on Britons Over 1,000 Times https://t.co/BBLsSwvNjJ
— Breitbart London (@BreitbartLondon) February 28, 2021
This extraordinary spending will now have to be paid for, Sunak said, and projected borrowing would continue to rise until 2023, when it would start to fall or else total borrowing would rise to unsustainable levels. Underlining the scale of the problem the government created by electing to shut down the economy last year, Sunak said: “It is going to be the work of many governments over many decades to [pay the money borrowed] back”, and just a one per cent increase in interest rates and inflation now would increase the cost of the government’s debts by £25 billion at a stroke.
Balancing his continued big spending on coronavirus bailouts with his intention to get the blossoming national debt under control, Mr Sunak told Parliament: “While it is right to help businesses and people through an acute crisis like this one, in normal times the state should not be borrowing to pay for everyday public spending… in the medium term we can not allow our debt to keep rising, and given how high our debt is now, we should be paying attention to its affordability.”
A key victim of the government’s lockdown is one of the Conservative Party’s core vote-winners: its reliability at cutting income taxes for ordinary Britons faster than the value of those wages are eroded away through inflation. The so-called ‘personal allowance’ — a tax-free amount anyone may earn before the state begins to deprive them through income tax — had risen from £6,475 in 2010 to £12,500 by 2020.
Yet this campaigning favourite will now be suspended, the annual increases enjoyed by working people over the past decade frozen for the rest of the parliament. While this isn’t a tax rise in the sense the thresholds at which different taxation levels kick-in will be preserved, as wage inflation pushes earnings higher, more and more people will be pushed into higher bands.
Businesses will see tax rises more directly, with taxes on profits — known as corporation taxes — rising six per cent to 25 per cent. Sunak defended the change by noting Britain would still have the lowest levels of corporate profit taxes in the G7, but nevertheless, the UK will still lose its competitive advantage over 20 other OECD members with the great leap.
Some of this will be offset, the Chancellor said, with a so-called “super deduction” incentive to encourage businesses to invest. The new rule would allow companies to reduce their tax bill by 130 per cent when making capital purchases — as Sunak said, a construction firm buying £100 million of new equipment could reduce its tax liability by £130 million.
The Chancellor said: “We’ve never tried this before in our country. The OBR says it will boost business investment by 10 per cent, around 20 billion more per year. It makes our tax regime for business investment truly world-leading, lifting us from 30th in the OECD to first.
“Worth 25 billion in the two years it is in place, this will be the biggest business tax-cut in modern British history.”