“The government has provided unprecedented financial support to tackle the economic effects of Covid-19 and as we move out of the initial lockdown, speculation continues to build on how the government will eventually settle the bill. With further austerity ruled out by the Prime Minister, the Chancellor is under increasing pressure to find a solution that is both politically acceptable, and economically practical.
“The survey shows that there is a clear acceptance among MPs that taxes will have to rise in future to pay for the financial measures and to support our public services.”
How might the government increase tax?
“The Treasury may increase income tax rates. Taxes on income make up the largest proportion of the government’s coffers so even a fairly marginal change would have a big impact on the impending deficit. However, any tax that reduces disposable income during a downturn will be hard to stomach, and so it is likely that income tax rates will remain unchanged in the short- to medium-term but will then increase in the long term, as the government sends a signal to the markets that they are committed to reducing the deficit.
“There is also growing speculation that a one-off or ongoing levy on personal wealth could be implemented in the UK to rebalance the wealth distribution and provide a significant boost to government revenue. However, there are a number of practical and political difficulties associated with a levy on wealth, so it is likely that any change to the taxation of wealth will take the form of changes to Capital Gains Tax and Inheritance tax.
“In this period of economic uncertainty, one thing is clear: anything and everything will be on the table and we will see a flurry of fiscal changes from the government in the months and years ahead that will radically alter the tax landscape. Access to quality financial advice is going to prove vital in managing these changes.”