Top think-tank warns Rishi Sunak to avoid 'act of self-sabotage'

Don’t wreck the recovery by raising taxes! Top think-tank warns Rishi Sunak to avoid ‘act of self-sabotage’ in bid to repair battered public finances

  • Hiking taxes to cover Covid losses would be ‘self-sabotage,’ a think tank warned
  • Britain’s national debt has topped £2trillion, with borrowing set to hit £350bn 
  • Country faces ‘enormous economic uncertainty,’ on top of Brexit trade talks

Increasing taxes to pay for the Covid crisis would be ‘an act of self-sabotage’ which would derail Britain’s economic recovery, Rishi Sunak was warned last night.

The Chancellor has repeatedly signalled that tax rises will be needed to repair the battered public finances.

With Britain’s national debt topping £2trillion for the first time and borrowing expected to hit £350billion this year, he has admitted it will be difficult to stick to the Tory manifesto pledge not to increase income tax, national insurance or VAT.

But a report by top think-tank the Centre for Policy Studies has warned increasing taxes will hamper the recovery, as well as making Britain one of the world’s least competitive and highest-paying tax regimes.

Rishi Sunak, pictured leaving Downing Street with Boris Johnson on Tuesday, has been warned a tax hike to cover the cost of the Covid-19 crisis would be an ‘act of self-sabotage,’ against Britain

Tom Clougherty, the think-tank’s head of tax, said: ‘Trying to close the fiscal gap now, in the midst of enormous economic uncertainty, and with a post-Brexit trade deal hanging in the balance, would be an act of self-sabotage.’

He said any ‘short-term revenue boost’ would likely be outweighed in the medium term by a drag on economic growth. He added: ‘Britain cannot afford to take its tax competitiveness for granted.’

The Treasury has already ordered a review of capital gains tax – a levy on profits generated when selling assets, such as investments and second homes. 

Britain’s gross domestic product, which reflects the size and health of its economy, has plummeted in 2020, due to the coronavirus pandemic and uncertainty over a post-Brexit trade deal

It will look at whether to increase the levy, currently between 20 and 28 per cent, as well as removing allowances and reliefs, such as the exemption on selling your main home.

Officials have also reportedly considered increasing corporation tax from 19 to 24 per cent.

The appeal by the Right-wing think-tank, created by Margaret Thatcher and Sir Keith Joseph, will resonate with Tory backbenchers who are fiercely opposed to tax rises.

David Davis, former Brexit secretary, said: ‘Even in normal circumstances you have to be wary of increasing taxes in such a way as to reduce economic activity. 

‘When the country and the economy is as fragile as it is right now it would be an unforgivable error to stall growth with extra taxes.

‘They would have the opposite effect intended.’

But even those who believe tax rises are both necessary and inevitable have stressed that now is not the time to do it.

The Treasury, led by Chancellor of the Exchequer Rishi Sunak, has already ordered a review of capital gains tax, with reports it’s also considering increasing corporation tax

Among them is Britain’s leading economic think-tank the Institute for Fiscal Studies.

Earlier this week it warned the average family faces paying an extra £125 a month within five years to stop the Government debt spiralling out of control.

It predicted tax rises worth £42billion a year would be required by the middle of the decade – the equivalent of an increase of 6p in both basic and higher rate income tax.

Despite this, director Paul Johnson has said the fragile state of the economy would make it ‘entirely inappropriate for the Chancellor to consider raising taxes this year or next, or possibly even the year after’.

Since the Tory Party conference last week, Mr Sunak has hinted tax rises may be delayed to save jobs, amid fears that further restrictions and lockdowns to cope with a second wave of the virus could lead to mass layoffs.

Many Conservative backbenchers will be opposed to the hikes. Former Brexit secretary David Davis said it would be an ‘unforgivable error to stall growth with extra taxes’

A Treasury spokesman said: ‘The UK has a highly competitive business tax regime and remains one of the best places in the world to do business. 

‘We have a lower headline rate of corporation tax than any other major comparable economy and generous reliefs for both research and development.

‘We’re committed to a fair and sustainable tax system that helps people and families with the cost of living, funds the first-class public services they expect and creates an environment for business to succeed.’

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