The Treasury is currently putting together Autumn Budget plans for a ‘£30 billion tax raid’ that is aimed at the wealthy and businesses as well as pensions and foreign aid, a Sunday Times article suggests.
Chancellor Rishi Sunak already hinted that the self-employed would have to pay higher tax when he announced the £8 billion Self-employment Income Support Scheme to help them at the height of the pandemic.
COVID-19 has seen Government debt increase to above £2 trillion. The blueprint of the Budget sees to reclaim some of that money with income tax and corporation tax being at the centre.
At a Treasury Select Committee hearing, experts from four think tanks – Resolution Foundation, Institute for Fiscal Studies (IFS), Institute for Government and Institute for Economic Affairs (IEA) – gave suggestions on how to repay the Government’s debt.
On the agenda were rises to income tax for the self-employed, VAT and national insurance – all of which could have a significant impact on contractors who work through their own limited company.
Paul Johnson, IFS’s director, explained that rises in those should be expected in the medium-run as that is where a substantial amount of income comes from. Experts suggested an increase of two to three per cent on income tax, meaning contractors’
take-home pay would go down.
Sunak is also considering raising corporation tax from 19 to 24 per cent in the Autumn Budget – a move which would bring in an estimated £12 billion. COVID-19 has hit many companies hard and with profit much lower, the rise in tax could become burdensome.
Many business groups have already raised concerns, stating that a potential rise in tax could risk “stamping out the recovery”. The proposals have also sparked a backlash from Tory backbenchers. MP for Wokingham, John Redwood wrote on Twitter: “You cannot tax your way to faster growth and more prosperity. We need policies to promote more jobs and activity to get the deficit down.”
Capital Gains tax is under consideration in the Autumn Budget. In July, Sunak ordered a review of this tax with a view to reform it so it is paid at the same rate as income tax. Under the current proposals, tax on profits from selling assets would rise from 10 to 20 per cent for basic-rate taxpayers. And for profits on the sale of second homes, it would increase from 18 to 20 per cent. For higher-rate and additional-rate taxpayers, this levy could rise to 40 per cent. This move could raise up to £14 billion a year for the Treasury from the wealthy.
The Treasury’s view is that this policy change would make the tax system fairer. However, Conservative MPs and businesses argue that it would penalise middle-income earners the most.
Pensions is also reportedly on the taxman’s list. The triple-lock pension, introduced in 2010, ensures that the state pension increases each year by 2.5 per cent, the rate of inflation or the average earnings growth – whichever is highest. This is under threat – something that would be controversial given the Conservative Party pledged not to touch it only last year. However, proposed changes could save the Treasury up to £8 billion a year.
Andy Chamberlain, director of policy at IPSE, said: “The economic recovery will be powered by the UK’s smallest businesses – those who work for themselves – but only if the Government creates the right conditions for them to do so.
“Media articles over the weekend which point to significant increases in the taxation of these businesses are therefore very concerning. Many businesses are hanging on by a thread as a result of the economic collapse caused by the pandemic. Now is not the time to hit them with a tax hike, but rather to nurture and support them so that they in turn can fuel the recovery.”