The Government has increased its debt significantly in 2020 to support the country during the Coronavirus pandemic, with £208.5 billion of borrowing this financial year (2020/21), and that total expected to reach £372 billion in the year to April 2021. With interest rates at a record low, and strong speculation that the Bank of England could set a negative interest rate, the cost of the country’s debt is very low. However, Chancellor Rishi Sunak has commented that the country needs to ‘balance the books’ and move towards greater fiscal responsibility, which makes tax increases inevitable in the future.
The easiest way for the Government to generate additional tax revenue to address the deficit would be through increases in Income Tax, National Insurance and VAT; however, the Chancellor would need to break the ‘triple lock’ and the Conservative’s manifesto pledge to not raise these three taxes. With the Chancellor’s hands tied with the ‘big 3’ taxes, he may want to be creative and introduce completely new taxes.
Below we explore five potential options:
1. Wealth tax
The most recent speculation has been around the introduction of a wealth tax. It is difficult to put an accurate figure on how much a wealth tax could raise, as it would depend on the actual design, with estimates ranging from £7 billion to £174 billion.
Like any new tax, the Government would need to think very carefully about how a wealth tax is constructed, and more importantly, how it is collected – the cost of the administration by HM Revenue & Customs (HMRC) could outweigh or make a severe dent in the tax receipts.
There are numerous questions around a wealth tax: what is the wealth threshold, how do you value a person’s wealth and should any assets be excluded such as the main home and the value of the pension. Most importantly, how does someone actually pay a wealth tax if they do not have the immediate cash liquidity – they are ‘asset rich but cash poor’.
The Government needs to be mindful that wealth is more mobile than ever, and it could push the super-rich away from UK shores, which would see revenues from other taxes decrease as a result.
2. Property or second homes tax
A number of European countries have a wealth tax including Belgium, France, Spain and Switzerland, with the actual rate ranging from 0.2%-2.5% above a threshold. In the case of Belgium and France, their wealth taxes were modified quickly after their introduction to broadly only apply to real estate.
The UK could follow suit and introduce a property or ‘second homes’ tax. Property is one of the most heavily taxed asset classes in the UK, with numerous changes introduced over the last 10 years; an annual value tax on real estate appears to be the last remaining option for the Government to add further taxation on property.
3. NHS surcharge
If you can’t increase Income Tax or National Insurance, the Chancellor could introduce a new tax which operates in almost the same way – he would call it an NHS surcharge, playing on the recent positive public sentiment around the UK’s health service. A temporary three year 1% increase on each rate of income tax would raise approximately £5.7 billion. It would be temporary, the money could be said to be channelled to the beloved NHS and the collection mechanism within the present tax system is already there. However, the politics would say that the Chancellor is breaking the ‘triple lock’ by the backdoor.
4. ‘Fat tax’
In July 2020, Prime Minister Boris Johnson admitted he was ‘too fat’ and proclaimed that the British people must lose weight to fight COVID-19. The Chancellor could be forced to introduce a new ‘Fat Tax’ with food and drinks manufacturers facing additional taxes on the amount of sugar, salt and fats contained in their products.
A good idea in principle as it raises additional taxes for the Treasury and tackles British obesity but it may not raise that much tax revenue and the additional cost would likely be passed on to the consumer. The Government estimated that the Sugar Tax would raise £520 million but it has struggled to get close to half that figure.
5. Data tax
How do you get more tax revenue out of the multinational technology companies such as Facebook, Amazon and Google?
Governments around the world have struggled to effectively tax these tech giants. The UK now has a Digital Services Tax but it is only expected to raise £500 million and critics have argued the cost of the new tax will be passed on to the advertisers who exploit these platforms.
The Government needs to think again and abandon traditional taxation on revenue or profits and instead apply a tax on the data held by these companies – public concerns around data security, privacy and how a person’s data is exploited could be addressed. The Data Tax would apply to any company storing the personal data of its UK users.
However, it is impossible to say how much the Data Tax would raise as its completely unknown as to how much these technology companies know about us.