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Summary
- UK should consider axing nearly 20 taxes to lower the overall tax burden and remove distortions, says IEA’s pre-budget release.
- However, Sunak has signalled that he is ready to raise taxes temporarily to fix the national finances gone haywire due to the Covid crisis.
- Sunak maintains that support to individuals and businesses would continue till the pandemic lasts.
British finance minister Rishi Sunak has a huge task of bringing the economy back on the track after a full year of uncertainties and challenges. Ahead of the budget this week, the Institute for Economic Affairs (IEA) has asked Sunak to simplify the UK taxation system, lower the overall tax burden, and remove the harmful distortions in the budget. In its pre-budget release, IEA has requested the UK government to scrap the TV licence fee, stamp duty, land tax, inheritance tax, vehicle excise duty, and 15 other taxes post-Covid.
These suggestions come down on the expectation that Sunak could raise taxes on Wednesday, 3 March. Apart from other things, he is widely expected to raise the corporation tax from 19 to 25 per cent.
IEA’s suggestion
The think tank has asked for simplification of the existing tax system by clubbing a variety of taxes on property into one single land value tax. Some of these include the business rate, the community infrastructure levy, and the council tax.
IEA has also suggested to replace taxes like the corporation and diverted profit tax with income tax on capital income which should be administered at the corporate level. The institute has argued that Britain should follow the footsteps of Hong Kong’s taxation system whose tax code is 48 times smaller than that of the UK. “The country needs lower taxes and an absolutely simplified taxation system”, said Alexander Hammond, policy analyst at IEA.
Sunak’s plan
Market speculations point out that apart from raising the corporation tax, Sunak may push up the capital gains tax to generate some of the high Covid spending undertaken last year. In an interview on Sunday, Sunak said that there is a challenge in the UK public finances and unless something is done to fix it, borrowings will continue to rise. But he was quick to add that this can’t happen overnight and given the scale of the shock, it is going to take time to fix things.
In another interview with the BBC, he said that the government would continue to support British people and businesses through the coronavirus crisis.
Media reports also cited that the budget forecasts will showcase the UK economy recovering faster than earlier expected, with the success of the vaccination programme, which would require fewer tax rises.
As British prime minister Boris Johnson has announced a four-step plan to gradually open up the economy by easing pandemic restrictions, some sectors will need to wait till 21 June to reopen. Market analysts expect VAT cut and business rates holiday to be extended beyond June 21 for pubs.
